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S&P Places Publicis on 'CreditWatch'

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PARIS In the wake of General Motors' bankruptcy filing on June 1, Standard & Poor's Ratings Services placed Publicis Groupe's 'BBB+' long-term corporate credit and senior unsecured debt ratings on CreditWatch, with negative implications.

In GM's Chapter 11 filing, Publicis' Starcom MediaVest unit is listed as the automaker's sixth-largest creditor, owed $121 million, while the Paris-based holding company itself is No. 18, owed $25 million.

GM accounts for more than 3 percent of Publicis Groupe's revenue, or a little more than $207 million in 2008.

"We see three main risk areas, directly linked to GM's bankruptcy filing, for the ratings on Publicis," said S&P credit analyst Melvyn Cooke, in a statement. "The new GM could decide to discontinue its contract with Publicis; Publicis could carry financial exposure stemming from media buying commitments it has made toward media networks on GM's behalf; and Publicis could sustain substantial losses on its outstanding receivables from GM."
 
He continued: "We are placing the ratings on Publicis on CreditWatch because we cannot, at this time, rule out the possibility of what we view as a worst-case scenario -- all three risk factors actually materialize, resulting in a potentially significant negative impact on Publicis' financial profile. We do not, however, see this as the most likely outcome at this stage. We aim to resolve the CreditWatch placement as soon as new, reliable information regarding the three risk areas mentioned above for the ratings on Publicis is available. We will try to assess, as GM's bankruptcy proceedings move forward, any related potential impact on Publicis' business and financial risk profiles."
 
Cooke concluded: "If Publicis is unable to retain the bulk of GM's business during and/or after GM's bankruptcy proceedings, and if Publicis has to bear most of the costs related to the media buying commitments toward media networks it has made on GM's behalf, we could lower the ratings on the group by one notch."
 
S&P said the outcome of the CreditWatch resolution would depend on Publicis' business and financial performance in the first half of 2009.
 
Despite concerns about the impact of GM's bankruptcy on Publicis, S&P also affirmed the company's 'A-2' short-term corporate credit rating.

In a statement late Thursday, Publicis said:

"GM asked the bankruptcy court to grant 'essential vendor' status to certain of its suppliers and to establish procedures for the assumption and assignment of certain contracts to the new company, and the bankruptcy court has agreed in principle with that concept. GM has authority from the court to grant "essential vendor" status to certain contracts, and has indicated that it will ask the court to approve the assumption and assignment of the bulk of its contracts to the new company (coming out of GM's Chapter 11 Bankruptcy reorganization). In both instances, GM has said in its bankruptcy filings that it expects to pay those vendors. The agencies of Publicis Groupe that work with GM have been asked to continue to work with GM through the bankruptcy and we expect our relationships to continue with the new company. In the event our agencies either are deemed essential or have their contracts assumed if the GM sale is approved, our agencies will have an important protection that reduces their exposure to the risk of non-payment of their debts in connection with GM before the date of the petition for protection, and assures a good relationship with the new company."

The company continued: "In addition, in many instances our agencies have acted as agents for GM with respect to certain suppliers, notably Starcom MediaVest's contracts with media owners for the purchase of media, which has led to GM scheduling Starcom as one of the large creditors in the bankruptcy proceedings. This represents the bulk of the business of our agencies in volume and value and reflects a conduit of funds to the media owners.

"According to the principle of 'sequential liability,' our agencies can only be held liable for payment of the invoices when acting in that capacity to the extent that they have been paid by GM. As we are waiting for the bankruptcy Court decision, we continue to work with GM to confirm the essential or assumed status of our agencies' agreements, following the bankruptcy filing. When the decision will be taken, we shall be in a better position to quantify our financial exposure. Taking into account the principle of sequential liability, which obliges us to pay media vendors on behalf of GM, only after receiving payment from GM, we evaluate today our maximum exposure at...$78 million. When our agencies' contracts are assumed and assigned to the new company that exposure is significantly reduced.  As soon as further information is available, more precise estimates on our exposure and risk will be communicated."