Fitch Affirms Aon's Ratings; Outlook Stable

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CHICAGO--(BUSINESS WIRE)-- Fitch Ratings affirms Aon Corporation's (Aon) Issuer Default Rating (IDR) and existing senior debt ratings at 'BBB+', and its commercial paper rating at 'F2'. The Rating Outlook is Stable. (A complete list of ratings follows at the end of this release.)

The affirmation reflects Aon's strong balance sheet and cash flow generation, very good financial flexibility, and Fitch's belief that Aon's financial leverage, as measured by debt-to-total capital and debt-to-EBITDA ratios, will remain within a reasonable range for the rating category.

At Sept. 30, 2011, financial leverage as measured by debt to total capital was 35.7% and annualized debt-to-EBITDA of roughly 2.1 times (x) which Fitch notes is higher than historical levels of under 30% due to the inclusion of approximately $2.5 billion of additional debt related to the Hewitt Associates (Hewitt) acquisition. In May 2011, Aon partially refinanced the related term loan with longer term senior debt, which Fitch viewed favorably.

Fitch believes Aon's liquidity profile is solid with unrestricted cash and short-term investments of roughly $719 million. Cash flow remains strong with earnings-based interest coverage of roughly 6.5x as of Sept. 30, 2011.

Aon's ratings continue to reflect the company's favorable competitive position as one of the top three global insurance brokers, with major operations in insurance brokerage, reinsurance brokerage and human capital consulting/outsourcing. Aon continues to demonstrate its ability to retain clients and grow new business while improving profitability.

Partially offsetting these favorable factors is the fact that Aon's earnings have been pressured by ongoing restructuring expenses, a soft insurance pricing cycle, and the global economic downturn. Fitch notes that Aon reported revenue growth in both its Risk Solutions (insurance brokerage) and HR Solutions (consulting/outsourcing) business through nine months 2011.

Fitch believes that in the long term, Aon's acquisition of Hewitt will result in positive business and operational synergies, with reasonable integration risk. Aon expects cumulative annual expense savings of $355 million, to be fully realized by the end of 2013. Hewitt represents one of the world's leading human resources consulting and outsourcing firms, and as such, this transaction significantly increased Aon's market share in this area. Fitch also believes that Aon's current management team has a very good track record related to the execution of strategic plans and expense cutting, and therefore Fitch expects integration risk will be manageable. As of Sept. 30, 2011, Aon was on track to meet its stated expectations.

The key long-term rating triggers that could result in an upgrade include a sustained strong improvement in operating performance on an absolute basis and relative to peers, a debt-to-EBITDA ratio at a consistent level of under 1.5x, and interest coverage as measured by an EBITDA-to-interest ratio near 15x.

The key rating triggers that could result in a downgrade include a sustained increase of the debt-to-EBITDA ratio to above 2.2x, a deterioration of the company's average EBITDA-to-interest ratio to the low to mid-single digits, and any impairment to goodwill that would materially impact the balance sheet and related ratios.

Fitch has affirmed the following ratings:

Aon Corporation

--IDR at 'BBB+';

--$225 million 7.375% senior debt due Dec. 14, 2012 at 'BBB+';

--$600 million 3.5% senior debt due Sept. 30, 2015 at 'BBB+';

--$500 million 3.125% senior debt due May 27, 2016 at 'BBB+';

--$600 million 5% senior debt due Sept. 30, 2020 at 'BBB+';

--$687 million 8.205% junior subordinated deferrable interest debentures due Jan. 1, 2027 at 'BBB-';

--$300 million 6.25% senior debt due Sept. 30, 2040 at 'BBB+';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Aon Services Luxembourg & Co S.C.A.

--Long-term IDR at 'BBB+';

--Euro500 million 6.25% senior debt due July 1, 2014 at 'BBB+'.

The Rating Outlook is Stable.

Additional information is available on Fitch's web site at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Broker Rating Methodology' (Dec. 17, 2010);

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Treatment of Hybrids in Corporate and REIT Credit Analysis' (July 11, 2011).

Applicable Criteria and Related Research:

Insurance Broker Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=590447

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Treatment of Hybrids in Corporate and REIT Credit Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=642132

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CONTACT:

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Gretchen Roetzer, +1-312-606-2327
Director
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Gregory Dickerson, +1-212-908-0220
Director
or
Committee Chairperson:
Donald F. Thorpe, CPA, CFA, +1-312-606-2353
Senior Director