Merrill credit analyst sees Interpublic bonds rangebound on lack of visibility

By Ronda Fears

Nashville, March 14 - Merrill Lynch & Co. credit analysts see The Interpublic Group of Cos. Inc.'s bonds remaining rangebound intermediately, or at least until there is greater visibility into its recovery process.

"Aside from facing a difficult operating environment for advertising and marketing services, The Interpublic Group of Cos. Inc. (Baa3/BB+) faces a series of unique challenges, which are likely to keep bonds range bound until these are resolved," said Merrill high-grade analyst Stuart Rossmiller in a report.

With the 7.25% notes of 2011 trading at 91.5, he recommends a market-weight position until there is better visibility on management initiatives to strengthen the balance sheet though the sale of NFO Worldwide, renewing its bank facility, operating improvements and the outcome of the SEC investigation.

The new convertible is a step in the right direction, Rossmiller said, but it may be a while before the entire view on Interpublic is clear.

Interpublic's new $800 million of 4.5% convertible senior notes due 2023, with a put in 2008, is positive, he said, "as it greatly improves IPG's liquidity and financial flexibility.

"It should provide management breathing room to devote its attention to improving operating profitability and to completing the sale of NFO without the shadow of [the 0% convertible put in December] overhanging," Rossmiller said.

He added, however, that "given the uncertainty surrounding geopolitical events, coupled with the moribund advertising and marketing services market, particularly in Europe and Asia, it may not be until the intermediate-term when IPG will be in a position o resume growth in its core operations.

"As a result, improvement in credit quality over the near-term will depend upon asset sales and cost reductions, as is the case with so many industrial credits at this stage in the business cycle."

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