Fitch Rates Interpublic Group's Senior Note Offering 'BBB'; Outlook Stable

Fitch Ratings has assigned a 'BBB' rating to Interpublic Group of Companies' (IPG) proposed senior unsecured notes issuance due 2022. The proceeds are expected to be used to fund the redemption of its $400 million 4.25% convertible notes due 2023 and the purchases of IPG common stock, if conversions of the notes result in an aggregate redemption price less than the net proceeds of the issuance. The company will redeem the convertible notes at par. A full list of ratings is shown below.

IPG will issue the senior notes under a new indenture (and supplemental indentures thereto). The notes will rank pari passu with the credit agreement, the other senior unsecured notes and the $200 million 4.75% convertible notes due 2023 (which may be put or redeemed by the company in March 2013).

Proposed terms are similar to previously issued senior notes. Terms include:

--A limitation on liens (excluding standard carve-outs), with permitted lien basket of up to 15% of consolidated net worth (Fitch estimates the basket at approximately $425 million);

--An obligation of IPG to repurchase the notes at 101% upon a change of control and rating trigger (as defined);

--Cross acceleration or payment default on debt greater than $50 million.

Fitch recognizes that the proposed transaction (the new notes and the redemption of the convertible notes) is expected to be modestly deleveraging and will benefit equity shareholder (by reducing the risk of equity dilution). The call of the 4.25% convertible notes will eliminate the potential conversion of the notes into approximately 33 million shares.

IPG reported solid results with 2011 full year revenues up 7.8% (up 6.1% on an organic basis). Fitch calculated EBITDA was up 18.6%, with EBITDA margins at 12.7% compared to 11.5% in 2010. The growth in EBITDA was driven by revenue growth and operating leverage within the company, as the company benefited from the investment in personnel and operational efficiencies made over the past five years.

Fitch expects IPG to continue to deliver competitive organic revenue growth; IPG has guided to 3% organic growth, which incorporates 2% to 3% in organic headwind due to business losses in 2011. Also, IPG is in a good position to continue to grow its EBITDA margins and reach competitive levels over the next few years; IPG has guided to an additional 50 basis point expansion in operating margins. Fitch believes these targets are achievable.

Fitch calculates free cash flow (FCF) at the end of 2011 of $22.1 million, which is materially lower than 2010's FCF of approximately $700 million. The decline in FCF is primarily related to working capital swings, providing an unusually high benefit in the 4th quarter of 2010 (benefiting the 2010 FCF figure) and an unwinding of the benefit in the first quarter of 2011. In addition, the company instituted its common dividend in 2011, $111 million paid out in the year, reducing Fitch's calculated FCF. Fitch expects FCF (after dividends) to normalize in 2012 and be in the range of $250 million to $450 million.

Fitch views IPG's liquidity as solid, supported by a cash balance of $2.3 billion. Fitch believes liquidity would still be considered sufficient if the cash balance declined to between $500 million and $1 billion. However, Fitch expects IPG to maintain sufficient liquidity to handle seasonal working-capital swings.

In addition to the $2.3 billion cash balance, IPG's liquidity is also supported by $984 million of availability under its $1 billion bank credit facility due 2016. As of year end 2011 near-term maturities (excluding the redemption of the 4.25% convertible notes) include $200 million in convertible notes that may be put to or redeemed by IPG in 2013 and $350 million in senior notes due 2014.

In late February, IPG announced an additional $300 million share repurchase authorization and maintained the current dividend level. The rating incorporates Fitch's belief that the company will deploy liquidity, including FCF, towards share repurchases and acquisitions in a disciplined manner.

The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage at a level below 2.5 times (x). Fitch calculates 2011 year end unadjusted gross leverage at 2.1x. Total debt at 2011 was $1.9 billion. This includes $111 million related to IPG's $221.5 million perpetual preferred stock, which receive 50% equity credit under Fitch's hybrid criteria.

The ratings also reflect IPG's position in the industry as one of the largest global advertising holding companies, its diverse client base, and the company's ample liquidity. While advertising is a cyclical industry, Fitch recognizes IPG and its global advertising agency holding companies (GHC) peers have reduced exposure to U.S. advertising cycles, by diversifying into international markets and marketing services businesses. In addition, the risk of revenue cyclicality is balanced by the scalable cost structures of IPG and the other GHCs.

Fitch currently rates IPG as follows:

IPG

--Issuer Default Rating 'BBB';

--Senior unsecured notes (including convertibles) 'BBB';

--Bank credit facility 'BBB';

--Cumulative convertible perpetual preferred stock 'BB+'.

Additional information is available 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:

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

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' Dec 15, 2011.

Applicable Criteria and Related Research:

Corporate Rating Methodology

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

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656516

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Contacts:

Fitch Ratings
Primary Analyst:
Rolando Larrondo, [phone]
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Shawn Gannon, [phone]
Associate Director
or
Committee Chairperson:
Mike Simonton, CFA, [phone]
Managing Director
or
Media Relations:
Sandro Scenga, [phone] (New York)
[e-mail]