Aon Issues Unsecured Notes, Gets Rating Actions From Moody's
Zacks Investment Research | Nov 29, 2018 10:50PM ET
Aon plc’s (NYSE:AON) recently issued $350 million of 10-year senior unsecured notes have received credit rating from Moody's Investors Service (Moody's). The rating agency has allocated a Baa2 rating these notes. The outlook for the parent company and Aon Corporation remains stable.
With the net proceeds from this offering, the company would pay a part of the remaining commercial paper and also use the funds for general corporate purposes.
Reasons Behind the Ratings
The ratings reflect Aon’s impressive global presence, diversification across clients, regions and products plus skill in providing leading risk, health and retirement solutions to middle-market, national and global clients. Aon has been successfully increasing its EBITDA and credibility via steady buyouts, organic growth and restructuring initiatives since its divestiture of benefits administration and business process outsourcing business in 2017.
These strengths are partially offset by the company’s financial leverage, its capital deployment through dividend payouts and share buybacks besides liabilities from errors and omissions in the delivery of professional services.
Last year, Aon’s divestiture generated proceeds worth more than $3 billion, used by the company along with its cash from operations to pay for 17 acquisitions in the period. During the first nine months of 2018, the company closed five buyouts along with 4% organic growth.
The credit rating agency estimates Aon to have a debt-to-EBITDA ratio in the range of 3x-3.5x and (EBITDA-capex) coverage of interest in the 5x-7x band for 12 months through September 2018.
Factors That Can Change the Ratings
The rating upgrade is possible if the debt-to-EBITDA ratio lies below 3x, (EBITDA - capex) coverage of interest is consistently above 6x and net profit margin is steadily above 9%.
Notably, factors that can cause a rating downgrade are debt-to-EBITDA ratio coming in above 3.5x, (EBITDA - capex) coverage of interest falling below 4x or net profit margin is lower than 6%.
Shares of this Zacks Rank #3 (Hold) company have rallied 15% in a year’s time, outperforming its Zacks Investment Research
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