Publicis’ GM Exposure Less Than First Feared

NEW YORK Publicis Groupe said today it was substantially reducing what it termed its “maximum exposure” to client General Motor’s bankruptcy procedure. The Paris-based holding company said it had been paid, “The bulk of our fee receivables as of the date of the bankruptcy, and GM has committed to pay us our remaining pre-petition fee receivables over the next few months.”

In its Chapter 11 bankruptcy petition in June, GM said it owed a total of $146 million to Publicis and its media agency subsidiary Starcom MediaVest Group, although Publics said around the same time that it calculated its “maximum exposure” at $78 million.

But today, after having received payments from “The New GM,” Publicis said its maximum exposure is just under $13 million.

In a statement, the holding company noted that GM effectively emerged from bankruptcy protection on July 10: “The agencies of Publicis Groupe have worked with Old GM and will continue to work with New GM. As we noted in our release of June 4th, we are now in a better position to quantify our financial exposure as a result of the GM bankruptcy. Since the filing of the bankruptcy, Old GM has signed agreements with some of our agencies and assumed and assigned contracts with other of our agencies to New GM. As a result, we have received payment of the bulk of our fee receivables as of the date of the bankruptcy, and GM has committed to pay us our remaining pre-petition fee receivables over the next few months. Taking into account the principle of sequential liability and the commitments we have received from GM, we have reevaluated our maximum exposure [at $12.8 million], which will be reflected in our second-quarter numbers when they are released on July 23, 2009.”

There is no word yet on how the shop’s new exposure estimate will affect its credit rating. In the wake of GM’s 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.

But the credit service said at the time it would likely adjust the Publicis ratings based on how the GM situation unfolded.

Said S&P analyst Melvyn Cooke:: “We aim to resolve the CreditWatch placement as soon as new, reliable information regarding the risk areas 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.

Related: “S&P Places Publicis on CreditWatch”