A labyrinthine new line of credit set up by Interpublic Group has triggered an outbreak of nervous tics among analysts and shareholders, some reportedly fearing it augurs a glitch in the group's restructuring plans.
The beleaguered global marketing group has replaced its existing credit facility with a $526 million (€410.0m; £282.7m) revolving stand-by credit agreement. To facilitate this, IPG has set up a "special-purpose" vehicle called ELF Special Financing Ltd (ELF being an acronym for Enhanced Liquidity Facility).
Interpublic claims the deal is structured to minimize potential dilution of existing shareholdings; also that it won't increase indebtedness unless it borrows under the agreement. However, IPG's debt could increase by up to 15% if an over-allotment option is exercised. The facility remains in place until June 30, 2009.
Some analysts worry that the transaction has too many variables and could end up by depressing the value of Interpublic shares if the company has to issue more stock to satisfy the ELF warrants.
Writes Bear Stearns analyst Alexia Quadrani: " This sends a strange signal to equity investors. There will likely be eventual earnings dilution from conversion of the warrants."
Craig Huber of Lehman Brothers is of like mind, opining: "Interpublic's decision to access additional capital is not confidence inspiring."
Data sourced from Wall Street Journal Online; additional content by WARC staff