MMC Looks To Put Fee Scandal Behind It

By Michael Ha and Mark E. Ruquet

NU Online News Service, Nov. 23, 4:15 p.m.EST?With a new credit agreement and hopes of putting itscontingency fee scandal behind it, Marsh & McLennan Companieschief is taking a positive look toward the future.[@@]

MMC's chief executive said he is "hopeful" that his troubledbrokerage firm and New York Attorney General Eliot Spitzer can workout a deal before the end of the year, an MMC spokespersonsaid.

However, that outlook was not entirely shared by the Moody'sInvestors Service rating agency, which said today it is stilleyeing the firm for a possible downgrade of its debt rating.Moody's also said it had concerns about continuing investigationsof MMC.

Barbara Perlmutter, spokeswoman for MMC, told NationalUnderwriter that the firm's recently appointed chiefexecutive, Michael Cherkasky, is "hopeful that we will be able tohave a settlement before the year is over." Ms. Perlmutter said heis currently working toward reaching a settlement before 2005.

Mr. Cherkasky took over as CEO at MMC after Mr. Spitzer filed astate anti-trust action seeking punitive damages against thecompany for bid-rigging. He said when the suit was announced thathe could not settle it with the current management in place. A fewweeks later, Mr. Cherkasky's predecessor Jeffrey Greenbergresigned.

"We have been cooperating with the attorney general's officefrom the very beginning," said Ms. Perlmutter, adding that Mr.Cherkasky is optimistic that there will be a settlement soon.

Ms. Perlmutter declined to say how much the settlement might beto the company and its shareholders. Last month, Mr. Spitzer'sspokesman, Darren Dopp, said a settlement may cost Marsh more than$500 million.

The suit that Mr. Spitzer announced in October alleges thatMMC's insurance brokerage division, Marsh, used bid-rigging andother methods to inflate the cost of insurance contract placementsin return for profitable market service agreements, paid by biginsurers who were part of a price-fixing scheme.

MMC announced earlier this month that it is setting aside $232million toward a settlement of the suit.

In an 8-K filing with the Securities and Exchange Commission,MMC said it has reached an agreement with its lenders on a new $1billion loan agreement and amended its existing $1.7 billion loanfacility.

The new $1 billion loan agreement will come due Dec. 31, 2007.The $1.7 billion amended loan agreement, which was due to expire in2005, extends $1 billion of it to June 13, 2007 and the remaining$700 million to June 9, 2009.

The agreements were worked out between Citibank, Bank ofAmerica, and Deutsche Bank AG New York Branch.

MMC expects the closing of the agreements by mid-December.

Moody's said these term loan facilities contain provisions thatare favorable to the arranging banks vis a vis the existing seniorunsecured creditors.

The term loan facilities will be unconditionally guaranteed byMMC's principal operating subsidiaries: Marsh Inc., PutnamInvestments Trust and Mercer Inc., Moody's noted.

Moody's commented that the $1 billion term loan facilitycontains mandatory prepayments which state that MMC shall repay theterm facility with 75 percent of the net proceeds from certain debtissuances and asset sales that exceed minimum individual andaggregate amounts.

Moody's said it believes these features create a distinctionbetween the credit quality of the term loan facilities and thesenior notes because they effectively subordinate the currentholders of senior unsecured bonds.

In the continuing review for possible downgrade, Moody's citedas key concerns, uncertainty over the magnitude and timing oflikely fines, restitution and settlements.

Mentioned as well was uncertainty over the company's dividendpolicy and possible adverse effects of new revelations arising fromongoing investigations or legal actions.

Moody's said the ratings would likely be lowered in the eventthat fines or settlements exceed $1 billion, the company does notprudently manage its dividend policy in light of recentdevelopments, or there are new material legal actions.