OREANDA-NEWS. Fitch Ratings has affirmed the ratings of the Interpublic Group of Companies, Inc. (IPG) including its Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS
--IPG's ratings reflect its position in the industry as one of the largest global advertising and marketing services holding companies, its diverse client base, and the company's ample liquidity.

--The ratings incorporate the cyclicality of the advertising industry and potential top-line volatility due to client wins or losses in any given year. Fitch notes that IPG has business line diversification with its marketing services and geographic diversification with roughly 44% of IPG's revenue generated outside the U.S. IPG delivered organic revenue growth of 5.5% and 5.7% in 2014 and first quarter 2015, respectively. The company expects organic growth in the range of 3% to 4% in 2015, which Fitch believes is achievable and is in-line to slightly above Fitch's current forecast for U.S. GDP growth of 3.1% for 2015.

--The risk of revenue cyclicality is balanced by the scalable cost structures of IPG and the other global holding advertising companies. IPG still lags its peers in consolidated EBITDA margin, although it has made significant process from a margin of 10.7% in 2009. As of March 31, 2015, Fitch calculates EBITDA margin of 13.5%, which compares to 15.2% for Omnicom Group, Inc. Fitch expects EBITDA margin of roughly 14.5% by year-end 2015. Fitch also expects IPG to achieve peer-level margins over the next two to three years, assuming low- to mid-single-digit organic revenue growth over this timeframe.

--The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage to a level below 2.5x.

KEY ASSUMPTIONS
--Low mid-single digit growth in 2015 (organic and acquisitive) offset by currency headwinds. Low mid-single digit thereafter;
--Margins expected to improve from cost controls and operating leverage;
--Model assumes constant dividend growth;
--Model assumes share buyback near prior ranges as well ongoing acquisitions.

RATING SENSITIVITIES
--A public commitment by the company to maintain gross unadjusted leverage below 2.0x coupled with peer level EBITDA margins could warrant upgrade consideration.

--Fitch is comfortable with management's willingness and ability to maintain its 'BBB' rating; however, a change in the company's posture toward maintaining adequate bondholder protection over the near and long term could affect the rating negatively. This may include an unadjusted gross leverage greater than 3.0x, significant margin erosion, or free cash flow (FCF) margin sustainably below 3%.

LIQUIDITY AND DEBT STRUCTURE

IPG's total debt outstanding at March 31, 2015 was \$1.8 billion and Fitch calculates unadjusted gross leverage at 1.7x.

Fitch views IPG's liquidity as solid, supported by a cash balance of \$734 million and marketable securities of \$7 million as of March 31, 2015, in addition to \$983 million of availability under its \$1 billion revolving credit facility due December 2018. The company's next two maturities are \$300 million due in 2017 and \$250 million due in 2022.

Fitch-calculated FCF increased to \$275 million in the latest 12 months (LTM) period ended March 31, 2015 from \$73 million in 2012. Fitch expects 2015 FCF in the range of \$300 million to \$400 million. Fitch expects IPG to maintain sufficient liquidity to handle seasonal working capital swings. Fitch's FCF expectation for 2015 also incorporates capital expenditures of \$150 million. In addition, Fitch's FCF expectations incorporate IPG's increased quarterly common dividend to \$0.12/share, for total annual cash dividend payments of approximately \$200 million.

IPG's U.S. pension plan was \$35 million underfunded as of the end of 2014. IPG should have no issues meeting any required U.S. pension plan funding.

In February of 2015, IPG announced an additional \$300 million share repurchase authorization, increasing total remaining authorization to \$392.3 million as of March 31, 2015. The rating incorporates Fitch's belief that the company will deploy liquidity, including FCF, toward share repurchases and acquisitions in a disciplined manner. Fitch expects IPG to continue to target small bolt-on acquisitions and the current ratings do not contemplate or expect a materially large acquisition.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

IPG
--IDR at 'BBB';
--Bank credit facility at 'BBB';
--Senior unsecured notes at 'BBB'.