Ad Holding Companies Face Credit Crunch
Credit ratings agencies are voicing new concerns about ad agency holding companies. The credit ratings are very important because of the large amount of client money that flows through agencies, instilling a need for client confidence and conservative management of debt.
Last week, Standard & Poor's revised its outlook on WPP Group and Publicis Groupe to "negative" from "stable." S&P also lowered WPP's short-term ratings to A-3 from A-2. S&P already has Omnicom on a negative "Creditwatch," meaning a change in investment grade could occur within 90 days.
"These companies are definitely going to shrink this year, given everybody's projection of the numbers. If your profits are shrinking, your debt looks that much bigger compared to your profit," says one Wall Street analyst. On the other hand, S&P rep Chris Atkins says the marketing communications industry is faring quite well in comparison to the rest of corporate America. All the ad holding companies fall into the investment grade category, with the exception of IPG. Atkins estimates that only about 20% of U.S. companies are currently investment grade.