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Willis refinances to end Goldman Sachs debt burden

More than two years after it took on a $500mn bridging facility at punitive interest rates with Goldman Sachs, Willis is refinancing the debt on significantly more favourable terms.

Willis took on the 2016 unsecured notes at an interest rate of 12.875 percent, in the wake of the 2008 $2.1bn Hilb Rogal Hobbs acquisition and at the height of the credit crisis.

The big three broker recently issued $300mn of 4.125 percent senior unsecured notes that mature in 2016.

It is also looking to place $500mn of senior unsecured notes due in 2021 that bear interest of 5.75 percent.

Willis used $465mn of the finance raised to repurchase the debt and then announced on 18 March that it would redeem the remainder on 17 April.

According to a Fitch Ratings note the move will save Willis $23mn in annual expenditure on debt interest. Fitch pointed out that Willis may be obliged to pay "a make whole premium" of up to $180mn to retire the debt, although Goldman Sachs' involvement in the debt issuance may lead to a more favourable outcome.

Mike Neborak, Willis Group CFO, explained the move to The Insurance Insider. "Why do this now? One, we had an attractive opportunity given the overall debt market. And two, more importantly, there was an internal view in Willis that interest rates will be higher in the future than they are now."

This takes Willis's debt-to-Ebitda ratio back up from 2.5x to 2.7x. Neborak said that the company was expecting to bring this back down to 2.5x by year-end, with further de-levering moving it towards the sub-2x target thereafter.

Neborak ruled out suggestions that the debt was being raised as a prelude to M&A activity. "The proceeds over and above the main event - which was to take the high-cost debt out - were relatively modest," he said.

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