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Moody's: Omnicom view stable
Moody's Investors Service said it changed Omnicom Group Inc.'s outlook for its long-term (Baa1 senior unsecured) and short-term (Prime-2) debt ratings to stable from negative.
The revised outlook reflects the company's improved liquidity profile, solid operating performance, and significant free cash flow generation, all of which contribute to a stable credit profile despite Moody's expectation the company will use free cash flow after dividends and mandatory debt repayment for acquisitions and share repurchases.
Moody's changed the outlook to negative in February 2003 due to the aggressive manner in which the company has relied on annually convertible putable debt for a significant portion of its debt capital structure without significant long-term, backstop alternate liquidity in place.
While the company has not dramatically altered its debt capital structure since Moody's revised the outlook from stable to negative in 2003, management has improved its internal and external sources of liquidity. However, Moody's said it remains concerned about the company's $2.34 billion in putable contingent convertible notes, with $1.74 billion putable annually with an additional $600 million putable in 2006, given Moody's expectation the company will, ultimately, satisfy any potential puts in cash.
Approaching 2006, if the company is not well positioned with a combination of long-term, alternate liquidity and/or cash to potentially satisfy $2.34 billion in puts and finance about $800 million in seasonal working capital needs, the ratings could come under pressure again as Moody's believes the company could become vulnerable in a downward credit cycle.
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