Back to top

Image: Shutterstock

Marsh & McLennan (MMC) Offers $750M Senior Notes in 2 Tranches

Read MoreHide Full Article

Marsh & McLennan Companies, Inc. (MMC - Free Report) recently announced the pricing of $750 million of senior notes in two tranches with an aggregate principal amount of $400 million and $350 million, respectively. With interest rates of 2.375% and 2.9%, the two tranches of notes are set to mature on 2031 and 2051, respectively.

Shares of Marsh & McLennan gained 2.9% on Dec 2.

Marsh & McLennan intends to utilize the proceeds derived from the sale of the notes  to repay or redeem the outstanding aggregate principal amount of $500 million senior notes bearing interest rate of 2.75%, which are set to mature in 2022, and for other general corporate purposes.

By issuing senior notes amid a continued low interest rate environment, Marsh & McLennan can procure funds at lower cost and enhance financial flexibility. This, in turn, reinforces MMC’s efforts to reduce the interest expenses, which otherwise can put pressure on the margins. As of Sep 30, 2021, Marsh & McLennan had $10.7 billion senior notes.

MMC seems to have succeeded in pursuing its endeavor as interest expenses slumped 13.4% in the first nine months of 2021 from the prior-year comparable period.

Marsh & McLennan boasts of a solid cash balance and sustained cash generating abilities. This, in turn, helps the Zacks Rank #3 (Hold) global professional services firm to service its debt uninterruptedly. MMC also has $2.8 billion left for borrowing under its revolving credit facility as of Sep 30, 2021.

In the first nine months of 2021, net cash provided by operations of Marsh & McLennan increased 3.8% from the year-ago comparable period. Solid cash flows can be utilized for pursuing growth-related initiatives, deploying capital and repaying debts, thus ensuring the stock’s creditworthiness.

A strong financial position places MMC well to service debt uninterruptedly. Times interest earned, the metric reflecting a company’s ability to meet interest payments, stands at 9.2X for Marsh & McLennan. The figure is higher than the industry’s average of 8.6X.

The leverage ratio of MMC has been improving for a while. Marsh & McLennan’s total debt to total capital of 50.8% at the third-quarter end improved 300 basis points (bps) from the level at the 2020 end.

Similar to Marsh & McLennan, other insurance stocks like Arthur J. Gallagher & Co. (AJG - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Lincoln National Corporation (LNC - Free Report) continue to issue senior notes with an aim to reduce the debt burden.

As of Sep 30, 2021, Arthur J. Gallagher had $850 million of senior notes. AJG’s leverage ratio is improving as total debt to total capital of 37.5% at the third-quarter end improved 310 bps from 2020-end.

Brown & Brown’s senior notes as on Sep 30, 2021 totaled $1.5 billion. The leverage ratio of BRO came in at 33.2 at the third-quarter end, which improved 260 bps from the 2020-end figure.

Total senior notes of Lincoln National came in at $4.9 billion as of Sep 30, 2021. LNC’s leverage ratio of 23.8 at the third-quarter end deteriorated 110 bps from the 2020-end figure.

Shares of Marsh & McLennan have gained 43.6% in a year compared with the industry’s rally of 23.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Shares of Arthur J. Gallagher, Brown & Brown and Lincoln National have gained 43.9%, 47.7% and 27%, respectively, in a year.