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Fitch Publishes IPG's Commercial Paper Program Rating of 'F2'
June 8, 2017 / 4:02 PM / 6 months ago

Fitch Publishes IPG's Commercial Paper Program Rating of 'F2'

(The following statement was released by the rating agency) NEW YORK, June 08 (Fitch) Fitch Ratings has published its 'F2' commercial paper (CP) and Short-Term Issuer Default Rating (IDR) for The Interpublic Group of Companies, Inc.'s (IPG) $1 billion CP program. The Rating Outlook is Positive. A complete list of ratings is outlined at the end of this release. As of March 31, 2017, IPG had approximately $1.9 billion of debt outstanding. The notes outstanding under the CP program will rank pari passu with IPG's other unsubordinated and unsecured indebtedness. IPG's $1 billion revolver, expiring October 2020, provides liquidity back-up to the CP program. Proceeds from amounts borrowed under the CP program are expected to be used for general corporate purposes including the refinancing of upcoming maturities. The Positive Outlook reflects Fitch's belief that IPG's credit protection metrics and credit profile are strong for the 'BBB' rating. IPG's operating profile has shown marked improvement since FY 2012 (EBITDA margins have improved more than 200bps), and the company continues to make progress in closing the gap relative to its peer group. Fitch believes this improvement will continue as the business grows and IPG further scales its cost structure while maintaining its conservative financial posture. KEY RATING DRIVERS --IPG's ratings reflect its position in the industry as one of the largest global advertising and marketing services holding companies, its diverse client base, and ample liquidity. --The ratings incorporate the cyclicality of the advertising industry and potential top-line volatility due to client wins or losses in any given year. IPG has reduced its exposure to U.S. advertising cycles by diversifying into international markets and marketing services businesses. For FY 2016, approximately 40% of IPG's revenues were generated outside the U.S. IPG delivered organic revenue growth of 5.0% and 2.7% in 2016 and first quarter 2017, respectively. The company expects organic growth in the range of 3%-4% in 2017. Fitch believes this is achievable given its current forecast for U.S. GDP growth and Worldwide GDP growth of 1.8% and 2.1%, respectively, for 2016. --Digital ad spend continues to capture more of the total advertising market. IPG remains platform-agnostic and the company remains focused on growing and strengthening its digital capabilities across their agency portfolio in line with market trends. --The risk of revenue cyclicality is balanced somewhat by the flexible cost structures of IPG and the other global advertising holding companies. IPG has made significant progress in improving EBITDA margins from 10.7% in FY 2009 to 15.1% in FY 2016. Fitch expects the EBITDA margin to remain around 15.0% for the 2017 fiscal year and expects IPG to remain at around this level, which is in line with peers, over the next two to three years, assuming low- to mid-single-digit organic revenue growth over this timeframe. --The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage to a level below 2.0x. Fitch expects capital deployment to go toward acquisitions, share buy backs and dividend growth. However, Fitch expects any such deployment to remain in the context of current ratings. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for IPG include: --Margins expected to improve from cost controls and operating leverage; --Model assumes continued dividend growth; --Model assumes share buyback near prior ranges as well as ongoing acquisitions. RATING SENSITIVITIES Fitch would consider an upgrade if IPG continues to demonstrate improvement in its operating profile, specifically maintaining EBITDA margins of approximately 15%, to bring them more in line with industry peers while maintaining leverage below 2.0x. Fitch is comfortable with management's willingness and ability to maintain its 'BBB' rating. However, a change in the company's posture regarding adequate bondholder protection over the near and long term could negatively affect the rating. This may include an unadjusted gross leverage greater than 2.75x, significant margin erosion, or sustaining free cash flow (FCF) margin below 3%. LIQUIDITY IPG's total debt outstanding as of March 31, 2017 was $1.9 billion (including capital leases). Fitch calculates unadjusted gross leverage at 1.6x. Fitch views IPG's liquidity as solid. IPG's liquidity position is supported by a cash balance of $775 million and marketable securities of $3.1 million as of March 31, 2017, in addition to $992 million of availability under its $1 billion revolving credit facility due Oct. 2020. The company's next two maturities are $300 million due in November 2017 and $250 million in 2022. Fitch-calculated FCF increased to $327 million in the latest 12 months (LTM) period ended March 31, 2017, from $267 in 2013. For 2017, Fitch expects FCF in the range of $400 million to $500 million, and that IPG can maintain sufficient liquidity to handle seasonal working capital swings. Fitch's FCF expectation also incorporates capital expenditures of $170 million to $200 million. In addition, Fitch's FCF expectations incorporate IPG's increased quarterly common dividend, to $0.18/share, for total annual cash dividend payments of approximately $280 million. IPG's U.S. pension plan was $31.6 million underfunded as of the end of 2016. IPG should have no issues meeting any required U.S. pension plan funding. In February 2017, IPG announced an additional $300 million share repurchase authorization, increasing total remaining authorization to $400.4 million as of March 31, 2017. The rating incorporates Fitch's belief that the company will deploy liquidity, including FCF, toward share repurchases and acquisitions in a disciplined manner. Fitch expects IPG to continue to target small bolt-on acquisitions, and the current ratings do not contemplate or expect a materially large acquisition. FULL LIST OF RATING ACTIONS Fitch assigns the following ratings: Interpublic Group of Companies, Inc. --Short-term IDR 'F2'; --CP 'F2'. Contact: Primary Analyst Jack Kranefuss Senior Director +1-212-908-0791 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Patrice Cucinello Director +212-908-0866 Committee Chairperson Craig Fraser Managing Director +212-908-0310 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Date of Relevant Rating Committee: June 2, 2017 Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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