S&P Revises Its Outlook on WPP, Publicis

PARIS Standard & Poor’s Ratings Services revised its outlook on WPP Group and Publicis Groupe to “negative” from “stable.” In doing so, S&P voiced concern over the “significant deterioration of economic and advertising conditions worldwide.”
In making the announcement, S&P said it also lowered short-term ratings on WPP to “A-3” from “A-2” while affirming the company’s “BBB” long-term corporate credit and senior unsecured debt ratings. For Publicis, S&P affirmed the French concern’s “BBB+/A-2” long- and short-term corporate credit ratings and “BBB+” senior unsecured debt ratings.
With WPP, S&P credit analyst Melvyn Cooke said the global advertising slump “may lead to significantly slower-than-expected deleveraging at WPP, and even to increased leverage in the short-term.” Cooke believes WPP’s ratio of adjusted average debt to EBITDA is likely to exceed 3.5 times by the end of 2009, a “high level” for a “BBB” rating.
Like many outsiders, S&P thinks industry forecasts for 2009 are more optimistic than is warranted. While WPP has budgeted for 2 percent negative growth, S&P’s Cooke expects the company will “suffer a greater revenue decline, on an organic basis, than it has budgeted. WPP may then find it a challenge to maintain its headline EBIT margin; we believe deleveraging will therefore be difficult before 2010.”    
For Publicis, Cooke raised caution about how current industry conditions “may lead to an increase in leverage” at the French company. S&P also cited concerns about Publicis’ exposure to General Motors, particularly through its media buying operations. “If GM files for Chapter 11, Publicis could, in our view, face significant losses on its outstanding receivables from GM, and there are significant uncertainties about its exposure to related outstanding liabilities toward advertising networks for media buying it has done on GM’s behalf,” according to Cooke.


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