KEY RATING DRIVERS
--IPG's ratings reflect its position in the industry as one of the largest global advertising holding companies, its diverse client base, and the company's 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 U.S. exposure to U.S. advertising cycles by diversifying into international markets and marketing services businesses. Roughly 45% of IPG's revenue is generated outside of the U.S. IPG delivered organic revenue growth of 2.8% in 2013. The company expects organic growth in the range of 3% to 4% in 2014, which Fitch believes is achievable and is slightly above Fitch's current forecast for U.S. GDP growth of 2.6% for 2014.
--The risk of revenue cyclicality is balanced by the scalable cost structures of IPG and the other global holding advertising companies (GHC). However, IPG still lags its peers in consolidated EBITDA margin. As of
--The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage to a level below 2.5x.
LEVERAGE AND LIQUIDITY
IPG's total debt outstanding at
Fitch views IPG's liquidity as solid, supported by a cash balance of
Fitch-calculated free cash flow (FCF) increased to
Fitch's FCF expectation for 2014 also incorporates capital expenditures of
IPG's U.S. pension plan was
In February of 2014, IPG announced an additional
Fitch recognizes the risk that the merger between Omnicom and Publicis may cause several of the other GHCs to consider larger acquisitions or merge with other GHCs. Fitch expects IPG to continue to target small bolt-on acquisitions and the current ratings do not contemplate or expect a materially large acquisition.
--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. This may include an unadjusted gross leverage target greater than 2.5x.
Fitch has affirmed the following ratings:
--IDR at 'BBB';
--Bank credit facility at 'BBB';
--Senior unsecured notes at 'BBB'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'Credit Encyclo-Media VI: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector' (
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Credit Encyclo-Media VI: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector
Source: Fitch Ratings
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