Fitch Affirms Interpublic Group's IDR at 'BBB'; Outlook Stable

Fitch Ratings has affirmed the ratings on the Interpublic Group of Companies, Inc. (IPG) including its Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

Rating Rationale:

--IPG's rating reflects its position in the industry as one of the largest global advertising holding companies, its diverse client base, and the company's ample liquidity.

--Fitch expects IPG to continue to deliver competitive organic revenue growth and is in a good position to continue to grow its EBITDA margins and reach competitive levels over the next few years.

--The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage at a level below 2.5 times (x). During first quarter 2012 (1Q'12), IPG modestly reduced its debt balance by redeeming $400 million 4.25% convertible notes due 2023 and issuing $250 million 4% senior unsecured notes due 2022. Fitch calculates pro forma year-end unadjusted gross leverage at 1.9 times (x).

--The rating incorporates Fitch's belief that the company will deploy liquidity, including free cash flow (FCF), toward share repurchases and acquisitions in a disciplined manner. In late February of 2012, IPG announced an additional $300 million share repurchase authorization and maintained the current dividend level.

--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.

Key Rating Drivers:

--A public commitment by the company to maintain gross unadjusted leverage below 2.0x coupled with peer-level EBITDA margins could warrant upgrade consideration.

--Fitch is comfortable with management's willingness and ability to maintain its 'BBB' rating; however, a change in the company's posture toward maintaining adequate bondholder protection over the near and long term could affect the rating negatively.

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. Fitch expects IPG to continue to deliver competitive organic revenue growth in 2012. 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 for 2012. Fitch believes these targets are achievable.

Fitch views IPG's liquidity as solid, supported by a cash balance of $2.3 billion as of year-end 2011. 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 May 2016. As of year-end 2011 near-term maturities 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.

Fitch calculates FCF at the end of 2011 of $10.5 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 4Q'10 (benefiting the 2010 FCF figure) and an unwinding of the benefit in 1Q'11. 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 $350 million to $450 million.

IPG's U.S. pension plan was $22 million underfunded as of the end of 2011. IPG should have no issues meeting any required U.S. pension plan funding.

Total debt at the end of 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.

Fitch has affirmed the following ratings:

IPG

--IDR at 'BBB';

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

--Bank credit facility at 'BBB';

--Cumulative convertible perpetual preferred stock at '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

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Contacts:

Fitch, Inc.
Primary Analyst
Rolando Larrondo, [phone]
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Shawn Gannon, [phone]
Associate Director
or
Committee Chairperson
Melissa Link, CFA, [phone]
Senior Director
or
Media Relations
Brian Bertsch, [phone]
[e-mail]