S&P Cites 'Negative Implications' for IPG

May Downgrade Holding Company's Credit Rating Further

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NEW YORK (AdAge.com) -- Interpublic Group of Cos.' junk credit ratings could be getting junkier. Standard & Poor's Ratings, a leading arbiter of borrowers' ability to repay debt, yesterday put the advertising holding company on CreditWatch "with negative implications," signaling it may downgrade the firm's BB+ long-term debt rating.

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'Intensifying concerns'
"The CreditWatch listing reflects Standard & Poor's intensifying concerns about senior management turnover at Interpublic, coupled with the previously identified material weakness in the company's internal controls related to the processing and monitoring of transactions," S&P analyst Alyse Michaelson said in a statement. "These issues, at a time when Interpublic is working to turn around a number of its businesses and stabilize operating trends, put pressure on already-vulnerable ratings."

Interpublic declined to comment.

S&P cut Interpublic's debt rating to BB+, the highest speculative or junk rating, in March 2003, shortly after the ailing company installed David Bell as CEO as part of its turnaround plan. The same month, S&P removed Interpublic from CreditWatch, meaning it didn't anticipate a near-term change in ratings.

Interpublic has progressed since early 2003, reducing its total debt to $2.2 billion as of June 30 from $2.6 billion at year-end 2002 and working through accounting problems that surfaced in 2002.

'Material weakness'
But the company acknowledged last month that it still has a "material weakness" in internal controls for its accounting and that it expects the problems to be there at year end. On the management front, Interpublic in June named a new chief financial officer, Robert Thompson, after the unexpected resignation of Chris Coughlin, the chief operating officer and CFO that Mr. Bell had recruited a year earlier.

In putting Interpublic back on CreditWatch, S&P said the material weakness in internal controls and weaknesses in balance sheet and systemwide monitoring "could potentially result in accounting errors."

'Will not be able to fully remedy'
"Although the company is taking steps to remedy its technology and financial reporting systems, it appears that it will not be able to fully remedy the issues prior to year-end," S&P said.

"Affirmation and removal of the ratings from CreditWatch will depend in part on the company continuing to receive a clean audit opinion on its basic financial statements," the ratings service said.

While Interpublic is on CreditWatch, there is a potential for a downgrade to a lower junk rating. "A downgrade would reflect increasing discomfort with management's ability to effectively resolve these issues in a timely manner, or if other unanticipated adverse accounting and key personnel-related developments occur," S&P said. "Further concerns relate to the potential repercussions of management departures and transitions, and to major internal operating inefficiencies."

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