Fitch Ratings has assigned a rating of 'BB-' to Interpublic Group's (IPG) $200 million 4.75% convertible senior unsecured notes due March 15, 2023. The new notes rank pari-passu with other senior unsecured IPG debt. The Rating Outlook remains Stable.
Fitch rates IPG as follows:
--Issuer Default Rating (IDR) 'BB-';
--ELF notes 'BB-';
--Senior unsecured notes (including convertibles) 'BB-';
--Cumulative convertible perpetual preferred stock 'B'.
IPG said Thursday that it has agreed to exchange half ($200 million) of its old $400 million, 4.5% convertible senior notes due 2023 for $200 million, 4.75% new convertible senior notes due 2023. This exchange enhances the IPG's financial flexibility by extending the first put date on the new securities to March 15, 2013 from March 15, 2008. In addition, the notes are not considered 'participating' securities meaning that should the IPG pay a common dividend it would not trigger the payment of contingent interest. This action provides IPG the capacity to address (if needed) the remaining $200 million of puttable notes from cash on hand if necessary without materially negatively impacting its liquidity position.
The rating and Outlook reflect IPG's position in the industry as one of the largest global advertising holding companies, its diverse client base, the company's ample liquidity, and the progress it has made recently toward winning new accounts and driving organic growth within its existing client base. Credit metrics have improved significantly from 2005 levels, and are expected to continue to improve into 2008. Concerns continue to reflect the risks associated with IPG's turnaround as it is still addressing issues at Lowe and within its media operations. Also, while Fitch believes IPG is ahead of its remediation plan, several material control weaknesses have yet to be remedied. IPG has reiterated its expectation of being Sarbanes Oxley complaint with the release of its 2007 form 10-K. Also, the rating incorporates the risk that a pending SEC investigation could potentially result in a cash outflow.
Including the exchange notes described above, the capital structure includes approximately $800 million convertible senior notes. Fitch has assigned these securities to class A (100% debt, no equity) as defined under Fitch's hybrid securities guidelines. Per Fitch's guidelines, these units are not considered mandatorily convertible units, and the underlying notes rank as senior notes (meaning there is no loss-absorption benefit). The capital structure also includes $525 million series B cumulative convertible perpetual preferred stock which Fitch has assigned class D (25% debt/75% equity) given its perpetual nature, deferability features and the loss absorption benefits that result due to this security's ranking in the capital structure.
For more information please see Fitch's report: 'Interpublic Group of Companies, Inc.' dated June 12, 2007 at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
