Business Context and Reporting Period
This Form 8-K Current Report, dated October 1, 2008, covers Willis Group Holdings Limited (Willis), a Bermuda-incorporated global risk and insurance brokerage firm. The filing details the completion of a major acquisition and the establishment of new financing facilities to support the transaction.
Key Financial Metrics and Capital Structure
- Debt Facilities: Willis entered into two new credit facilities totaling $2.0 billion in capacity:
- Five-Year Credit Facility: $1.0 billion total capacity (comprising a $15 million USD revolving credit facility, a $285 million multicurrency revolving credit facility, and a $700 million multiple draw term loan).
- 364-Day Credit Facility: $1.0 billion senior term loan.
- Initial Borrowings: On October 1, 2008, Willis borrowed $525 million under the Five-Year Facility and $1.0 billion under the 364-Day Facility, totaling approximately $1.525 billion.
- Interest Rates:
- Five-Year Facility: LIBOR plus 1.75% to 3.50% (Eurocurrency) or Prime plus 0.75% to 2.50% (Base Rate).
- 364-Day Facility: LIBOR plus 2.25% to 3.50% (Eurocurrency) or Prime plus 1.25% to 2.50% (Base Rate).
- Initial borrowings accrue interest at Prime plus 1.25% or LIBOR plus 2.25%.
- Acquisition Consideration: The merger with Hilb, Rogal & Hobbs Company (HRH) utilized a mix of cash and stock. Based on an Average Willis Share Price of $31.70, the cash consideration was $46.00 per HRH share, and the stock consideration was 1.4510 shares of Willis common stock per HRH share.
Material Changes
- Acquisition Completion: Willis completed the acquisition of HRH, a Virginia-based insurance brokerage firm, effective October 1, 2008. HRH was merged into Willis HRH, Inc., a wholly-owned subsidiary.
- Delisting: HRH common stock ceased trading on the New York Stock Exchange (NYSE) as of the opening of trading on October 2, 2008, and HRH will terminate its registration under the Exchange Act.
- Liquidity and Leverage: The company significantly increased its debt load to finance the acquisition, refinance existing indebtedness, and fund permitted share repurchases.
Outlook, Risks, and Contingencies
- Use of Proceeds: Funds from the new credit facilities are designated for financing the HRH acquisition, paying transaction fees, refinancing existing debt, and potentially repurchasing Willis common stock.
- Covenants: The new credit agreements impose affirmative and negative covenants, including limitations on indebtedness, liens, asset sales, and fundamental changes. Mandatory prepayments are required quarterly after the first anniversary of the Five-Year Facility closing.
- Events of Default: Standard triggers include non-payment, covenant violations, defaults on other material indebtedness, and insolvency events.
- Financial Reporting: Financial statements for the acquired business and pro forma financial information are not included in this filing; they are expected to be filed via amendment within 71 days.
Investor Verification Checklist
- Verify the final exchange ratio and total consideration paid for HRH once the election period concludes.
- Review the upcoming amendment to this 8-K for the required pro forma financial information to assess the combined entity's leverage and liquidity.
- Monitor the impact of the new debt service obligations (interest and mandatory prepayments) on future cash flows.
- Confirm the status of HRH's NYSE delisting and the termination of its SEC registration.
- Check for any subsequent filings regarding the utilization of the remaining $475 million capacity under the Five-Year Credit Facility.