Fitch Affirms Omnicom's 'A-' Senior Debt Rating; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed Omnicom Group Inc.'s (Omnicom) 'A-' senior unsecured debt rating and the 'F2' short-term rating of Omnicom Finance Inc./Finance plc/Capital Inc. The 'A-' ratings on the bank credit facilities of Omnicom Finance Inc./Finance plc/Capital Inc. and the short-term ratings of Omnicom Finance Inc./Finance plc/Capital Inc. have also been affirmed by Fitch. Approximately $2.5 billion of debt is affected by this action. The Rating Outlook is Stable.

The ratings reflect Omnicom's position as the leading global advertising agency, the company's consistent operating performance, supported by solid net new business wins, and its stable credit profile. These strengths are balanced by the cyclical sensitivity of advertising expenditures and the potential for higher leverage resulting from increased acquisitions or share repurchases.

The company's solid creative reputation and its focus on client services have allowed Omnicom to maintain the strongest organic growth performance among its peers over the past several years. Over the difficult 2000-2003 period, the company achieved average revenue growth of 12% and organic growth of 5%. Solid growth in the business has continued in 2004, with revenue growth of 14% through the first nine months of the year, including organic revenue growth of 7%. (Organic revenue growth represents the growth of revenues excluding the effect of acquisitions and currency translations.) Although margins have contracted slightly in 2004 as a result of increased costs to comply with Sarbanes-Oxley requirements and for increased severance, EBITDA has increased 11%. The outlook for continued moderate growth in the U.S. and in major European markets in 2005-2006 should support continued favorable trends for Omnicom, with organic growth anticipated to be in the midsingle range over this period.

Omnicom has maintained stable leverage over the 2003-2004 period, with trailing 12-month gross debt/EBITDA of 1.8 times (x) and adjusted debt (including operating leases)/EBITDAR of 3.4x. The company's strong cash flow from operations and modest capital expenditure and dividend requirements provide excess cash flow with which the company can pursue additional acquisitions or repurchase stock. Fitch anticipates that such acquisitions and or stock repurchases will primarily be funded from free cash flow so as to maintain stable credit protection measures.

General concerns for the rating relate to cyclical trends in advertising expenditures and the potential for higher leverage resulting from unanticipated levels of share repurchases or acquisition activity. The company has an active share repurchase program and has purchased close to $450 million in stock in the first nine months of 2004 as acquisition activity declined.

Acquisitions have historically been an important source of growth for the company and a sizable use of cash. Over the past five years, the company has spent over $3.3 billion for acquisitions (including earn-out payments). Unlike many of its peers, Omnicom has principally focused on small- to medium-size acquisitions, which has facilitated the integration of the acquired businesses within the company. Acquisition activity has slowed somewhat in 2004 but is expected to increase over the intermediate term as the company indicates that there is a full pipeline of available acquisitions. Such acquisitions would be in addition to contingent obligations. At Sept. 30, 2004, Omnicom's estimated future earn-out obligations totaled $361 million, with approximately $192 million expected to be paid through 2005. In addition, Omnicom had potential obligations to acquire further equity interest in various companies totaling $148 million, of which $117 million was currently exercisable.

Omnicom maintains solid liquidity. In 2004, the company has funded its seasonal working capital requirements primarily from excess cash balances rather than from its commercial paper program. Year-end 2003 cash balances of $1.3 billion have declined to $450 million at the end of the third quarter, a period of peak seasonal working capital investment. The $1.5 billion commercial paper program is backed by $2.0 billion in committed bank facilities, which also have no outstanding balances at Sept. 30, 2004. Of total debt of $2.5 billion, $2.4 billion represents convertible debt maturing after 2030.

Liquidity risks arising from the option by bondholders to put the bonds to the company on annual dates have been substantially mitigated by the company's ability to provide incentive payments to the bondholders at those dates to forego their put option. The primary factor determining the need for such incentive payments is the stock price of the company relative to the conversion price of the bond.

The company is in the process of amending the indentures in the convertible bonds with the approval of the bondholders to require Omnicom to pay cash for the principal amount of the bonds upon conversion by the holders. Previously, the conversion of the bonds could only be settled with stock. These amendments will eliminate the dilutive effects on earnings of the equity conversion features of the bonds under new reporting standards. These changes also substantially eliminate the credit benefits of the option to settle the obligations with equity. However, Fitch's current analysis and credit metrics characterize the full amount of the convertible notes as debt obligations of the company.