AES Deal Reassures S&P, Interpublic Moves Closer To Junk

Standard & Poor's has recognized AES Corp.'s efforts to push out its significant maturities by taking the company off credit watch, though still with negative implications. The company recently completed a balance sheet overhaul, which included a bank loan refinancing and a note exchange, and lifted the immediate threat for insolvency, noted the rating agency. S&P has affirmed the company's BB rating on its $1.62 billion credit facility and its B+ corporate credit rating.

The outlook on the credit is still negative pending the ability for the company to complete asset sales, pay down debt, and improve operations over the next two to three years. An AES spokeswoman said the company's management expects $1 billion in asset sales over the next year. If asset sales and debt reduction efforts are executed, S&P anticipates $50 million to $150 million of excess free cash flow.

* New York-based Interpublic Group of Companies teeters on the investment-grade edge after Fitch Ratings lowered the ratings on the company's credit facility to BBB- from BBB with a negative outlook. Weak revenue and lower than expected operating results caused the rating agency to downgrade the credit. The company's debt to EBITDA level, for example, is now expected to be 3 to 3.5 times, rather than an expected 2.5 to 3 times.

Although Fitch states that the near-term liquidity for the company is adequate, the rating agency is concerned with the company's financial flexibility in 2003. Interpublic is currently working to amend and extend a $500 million, 364-day credit facility due in May and it has $587 million of zero coupon notes expected to be put to the company in December of 2003. Michael Weaver, a Fitch analyst, anticipates that a renewed credit would hold a restriction that would not allow the company to use the funds to deal with the puttable notes. "Companies are struggling to get flexibility from banks," he added. The rating agency believes that capital market reception to any Interpublic financing is uncertain over the near term.

Interpublic has been able to pursue cost reduction initiatives, but weak revenue trends from lower advertising spending and client losses continue to burden the company's EBITDA. While the company is now focused on free cash flow, cash commitments are expected to draw on operational cash flows and impair the ability of the company to improve its balance sheet. Calls to Sean Orr, cfo, were not returned by press time.