Status of Some IPG Debt Reduced to Junk

Further Rating Downgrade Possible

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NEW YORK ( -- Fitch Ratings today lowered credit ratings one notch on Interpublic Group of Cos., downgrading convertible subordinated notes to junk status with a rating of BB+. Fitch cut ratings on senior unsecured debt and multi-currency bank credit to BBB-. Fitch's rating outlook for IPG remains negative, which could lead to a further downgrade.

The move follows a Dec. 6 downgrade by Standard & Poor's. Interpublic, the big agency holding company, has been plagued by financial restatements and sluggish performance.

Junk status
Junk status refers to credit rating on debt issues that are below so-called investment grade and considered more speculative due to an increased chance of default. Lower ratings raise the cost of borrowing by forcing companies to pay a higher interest rate on new debt issues.

Fitch defines BBB as "good credit quality" and BB as "speculative." Fitch said Interpublic's near-term liquidity "appears adequate" but cited "concerns about financing flexibility in 2003."

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"[Weak] revenue trends reflect both declines in advertising spending by major clients and client losses related to previous year's acquisitions," namely True North Communications, Fitch said. In June 2001, Interpublic bought True North, parent of Foote, Cone & Belding Worldwide, for $1.6 billion.

'Stem the deterioration'
Fitch said Interpublic "is evaluating expanded cost-reduction initiatives and is planning the disposition of the non-core Octagon operations to help stem the deterioration in earnings. The ability of management to execute on these and other initiatives to strengthen the company's credit profile are key to the resolution of the current rating outlook."

Interpublic has drawn heavy criticism for allowing Octagon, its sports-marketing venture, to make an ill-fated move into ownership of automotive race tracks. Interpublic executives have said they are working to resolve problems with Octagon.

'Sacred commitment'
At this week's UBS Warburg investors conference, Sean Orr, Interpublic executive vice president and chief financial officer, said he and Chairman-CEO John J. Dooner Jr. have a "sacred commitment" to keeping Interpublic's debt at investment grade.

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