Moody's Investors Service downgraded the debt ratings of Willis Group Holdings Ltd. yesterday after the insurance brokerage firm announced the completion of its deal to acquire Hilb, Rogal and Hobbs. The outlook for the ratings is negative.
The downgrade reflects the view that Willis financial flexibility has declined as a result of the firm's reliance on debt to help fund the acquisition, Moody's said.
There is also a concern with integration risk, impact of the property-casualty soft market, the weak economy and the current turmoil in credit markets, the New York-based rating agency explained.
Willis' purchase of Richmond, Va.-based insurance broker HRH for $2.1 billion includes approximately $800 million worth of Willis stock, $525 million of borrowings under a term loan facility and $1 billion of borrowing under a bridge loan facility. Some or all of the bridge financing is to be replaced by senior unsecured notes, said Moody's.
The action affects a number of Willis's debt positions. For example, Willis North America Inc. was downgraded from "Baa2″ to "Baa3." Willis Group Holdings provisional senior unsecured debt went from "(P) Baa3," to "(P)Ba1."
"The [HRH] transaction enhances Willis's business profile, particularly in the United States, but it is likely to constrain profitability in the near term as a result of integration costs and significantly increased interest expense," said Moody's Bruce Ballentine, lead analyst for Willis.
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