S&P Sees "Worst-Case Scenario" at Publicis in GM Bankruptcy; Contrast With IPG Is Striking

Standard & Poor believes Publicis may face a “worst-case scenario” in the General Motors bankruptcy — where GM fires the agency and leaves it on the hook for $146 million in unpaid media. As a result, S&P placed Publicis on “creditwatch.”

The rating — which is a measure of Publicis’ creditworthyness — has “negative implications,” S&P said. From the S&P release:

“We see three main risk areas, directly linked to GM’s bankruptcy filing, for the ratings on Publicis,” said Standard & Poor’s credit analyst Melvyn Cooke. “The new GM could decide to discontinue its contract with Publicis, Publicis could carry financial exposure stemming from media buying commitments it has made toward media networks on GM’s behalf, and Publicis could sustain substantial losses on its outstanding receivables from GM.”

We are placing the ratings on Publicis on CreditWatch because we cannot, at this time, rule out the possibility of what we view as a worst-case scenario — all three risk factors actually materialize, resulting in a potentially significant negative impact on Publicis’ financial profile.

S&P added that it did not regard the disaster scenario as “the most likely outcome at this stage.”

The news makes Interpublic’s recent change to its debt facilities look like a genius move. IPG persuaded its bankers to ignore GM’s debts when they calculate the availability of IPG’s credit lines. Plus, IPG is only on the hook with GM for about $21 million. As BNET noted on April 29, IPG’s “cash impact” exposure was thought to be as high as $150 million, but turns out to be a fraction of that. That is great news for IPG, as GM is 13 percent of IPG’s business.

At Publicis, GM accounts for just 3 percent of revenue, or a little more than $207 million in 2008, Adweek noted.

It begs a question: Why was IPG able to collect so much more of its money from GM, when it was so much more badly exposed to the automaker, but Publicis collected so little when it had such a small percentage exposure?

The full text of the release follows the jump.

• Previously:
• Publicis, Interpublic Owed $167 Million in GM Bankruptcy
• IPG’s GM Bankruptcy Credit Line Explained
• IPG Q1: Revenues Down 10.8%; Wall Street Wants “Worst-Case” GM Scenario; Layoffs Still a Threat
• Omnicom, Publicis Worst Hit in Auto Brand Axings
• Interpublic Q4: Revenue Declines; Good News in the Details; Layoffs Still a Threat
• IPG Maximizes Pain of Layoffs Through Uncertainty
• IPG and Omnicom Downgraded by Deutsche Bank on Layoff News
• IPG to Cut Up to 2,000 Jobs; PHD Atlanta to Close
• InterPublic Loses Cash for Third Straight Quarter

Global Ad Agency Publicis Groupe ‘BBB+’ Ratings On CreditWatch Negative Re General Motors Corp. Bankruptcy Filing

PARIS (Standard & Poor’s) June 4, 2009–Standard & Poor’s Ratings Services today said it placed its ‘BBB+’ long-term corporate credit and senior unsecured debt ratings on France-based global advertising agency Publicis Groupe S.A. on CreditWatch with negative implications. This follows U.S. carmaker General Motors Corp.’s (GM; D/–/–) filing for Chapter 11 bankruptcy protection on Monday, June 1, 2009.

At the same time, we affirmed the ‘A-2′ short-term corporate credit rating on Publicis.

“We see three main risk areas, directly linked to GM’s bankruptcy filing, for the ratings on Publicis,” said Standard & Poor’s credit analyst Melvyn Cooke. “The new GM could decide to discontinue its contract with Publicis, Publicis could carry financial exposure stemming from media buying commitments it has made toward media networks on GM’s behalf, and Publicis could sustain substantial losses on its outstanding receivables from GM.”

We are placing the ratings on Publicis on CreditWatch because we cannot, at this time, rule out the possibility of what we view as a worst-case scenario–all three risk factors actually materialize, resulting in a potentially significant negative impact on Publicis’ financial profile. We do not, however, see this as the most likely outcome at this stage.

We aim to resolve the CreditWatch placement as soon as new, reliable information regarding the three risk areas mentioned above for the ratings 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.

“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,” said Mr. Cooke.

Importantly, in all scenarios, the outcome of the CreditWatch resolution will depend on Publicis’ business and financial performance in the first half of 2009.