Fitch Ratings views Willis Towers Watson’s recently announced divestiture agreement as neutral to the Long-Term Issuer Default Ratings (IDRs) of both itself and Aon.
Willis Re and certain other corporate risk, broking and benefits services are all included as part of the companies’ attempt to satisfy various regulatory requirements
The deal, expected to close by this year’s third quarter, includes reinsurance assets and operations in 27 countries as well as other broking operations across Europe, the U.S. and Bermuda.
Fitch says the assets being divested comprised more than $1.3 billion of revenue and more than $360 million of EBITDA, which is calculated to represent approximately mid- to high-teens percentage of WLTW’s 2020 revenue/EBITDA.
Aon is believed by Fitch to be well positioned to capitalise on global insurance and professional services growth, thanks to its standing as a global leader in many of its end markets
While this mega-merger remains pending, Fitch notes uncertainty around pro forma financial policy, but believes Aon is strongly positioned at the ‘BBB+’ rating category with or without the deal closure.
Aon is seen as having shown strong performance through the cycle following strong organic revenue growth during 2020 and 1Q 2021, despite negative economic impacts from the coronavirus pandemic.
Post-divestiture and pro forma for the pending WTW merger is expected to generate more than $19 billion of revenue and more than $5.5 billion of adjusted EBITDA.
While integration and execution risk will be high given the scale of the WTW transaction, Fitch says the company is well positioned to execute the deal while managing its balance sheet at reasonable levels for the rating category in the coming years.
The company has consistently messaged on its public calls its commitment to its current investment grade ratings and its plans to manage its balance sheet conservatively in the near term.