IPG prepares for possible GM fallout

20 May 2009

NEW YORK: Interpublic Group, the US-based advertising holding company, has reached an agreement with its lenders, led by Citibank, as it seeks to prepare for the possible bankruptcy of General Motors, the ailing automaker, which is one of the company's biggest clients.

In a filing made to the Securities and Exchange Commission, Interpublic reported that it has amended the terms of its three-year debt agreement, which came into force in the middle of 2008.

The submission to the SEC stated that the "any bankruptcy or related event with respect to General Motors" would lead to lenders excluding certain losses from IPG's calculations of earnings before interest, tax, depreciation and amortization.

Overall, this amounted to "cash charges" of $150 million (€110m; £97m) and "non-cash charges" of $100m, with the former figure equating to the exact amount that GM owed the holding group for work either agreed or in progress at the end of February, according to Ad Age.

At that time, Michael Roth, IPG's chairman/ceo, argued this figure "assumes some very conservative assumptions, and hopefully that won't be the case, but we're using that for guidance."

The IPG agencies currently working for GM include McCann Erickson, which holds corporate duties and some responsibilities for Saab, while Campbell-Ewald is retained by Chevrolet, and Deutsch works with the auto maker's Saturn marque.

However, Roth argued that the total of $150m was not based on the worst possible outcome, which would see IPG's units based in Detroit close down, although he added this was an unlikely outcome whatever happened to GM and Chrysler.

The US government has issued a June deadline to General Motors to either start to restructure of ask to be placed into bankruptcy protection.

In its filing, IPG also argued the move was intended to increase its "financial flexibility," adding that "it has not drawn on any of its corporate credit facilities since 2003."

Data sourced from Forbes.com/AdAge; additional content by WARC staff