Fitch Affirms Omnicom's IDR at 'A-'; Outlook Stable

Omnicom Group, Inc.

--IDR at 'A-';

--Senior unsecured notes at 'A-';

--Short-term IDR at 'F2'.

Omnicom Finance, Inc.

Omnicom Finance, plc

Omnicom Capital, Inc.

--Bank credit facilities at 'A-';

--Commercial paper at 'F2'.

Approximately $2.8 billion in debt is affected by this action. The
Rating Outlook is Stable.

Omnicom's ratings continue to reflect the following:

--OMC's position as a leading global advertising agency holding company
(GHC), its scalable cost structure which can provide offset to cyclical
revenue declines, its continued net new business wins and its
historically stable credit profile. Fitch recognizes the company has
suspended its share repurchases and is dedicating free cash flow toward
repaying credit facility borrowings;

--These strengths are balanced by the risk associated with the current
cyclical declines in advertising expenditures, the negative impact of
reductions in media buying activity on working capital flows, reductions
in liquidity from expected puts of two sets of the company's convertible
notes in the next year, and lack of tangible assets.

Fitch believes that rating upside is unlikely over the intermediate term
as management does not appear to have an incentive or interest in
improving the credit profile materially enough to warrant an upgrade.
Omnicom's rating is low in the 'A-' category. Evidence that the company
is unable or unwilling to meaningfully scale the cost structure back in
accordance with revenue declines, or should the company's liquidity
position deteriorate further than Fitch is anticipating (Fitch expects
the company to maintain at least $500 million available on its
revolver), there could be negative rating pressure. While Fitch is
comfortable with management's willingness and ability to maintain its
'A-' rating, a change in the company's posture toward maintaining
consistent bondholder protection (i.e. liquidity erodes beyond Fitch's
expectations and management does not temporarily suspend the dividend)
could also affect the rating negatively.

Fitch estimates leverage of 1.4 times (x), as of March 31, 2009, down
slightly from 1.5x in 2008, due to reduced debt resulting from the
February 2009 convertible note repurchase financed by the revolver and
the company's dedication of cash to reduce revolver borrowings.
Omnicom's $2.8 billion in total debt includes $1.2 billion of
convertible notes that may be put to the company for repurchases. In the
past, Omnicom offered incentive payments to noteholders to forgo their
put option. If credit market conditions and Omnicom's stock price remain
relatively unchanged it is likely that the remaining $1.2 billion of
convertible notes would be put back to the company, $727 million
puttable in July 2009 and $467 million puttable in June 2010. Fitch
recognizes it may not be feasible for the company to provide an
incentive payment sufficient enough to deter noteholders from putting
the bonds. Fitch expects these convertible notes repurchase to be
financed with the revolver.

In addition to the drain on liquidity from repurchasing the convertible
notes, a tax liability is triggered by the repurchase. Omnicom has
indicated that it can defer this tax liability for five years and then
make the tax payment in 20% increments over a five-year period (provided
under the recent legislation passed by the U.S. government). While the
tax liability from all the convertible bonds could be material, the
deferral and the incremental payment plan makes the tax payments more
manageable and preserve liquidity in the near term.

At the end of the 2009 first quarter, Omnicom's liquidity was made up of
$437 million in cash and equivalents and $2 billion of availability
under its $2.5 billion credit facility. The company has indicated that
cash can swing as much as $1.5 billion. Peak borrowings under the credit
facility can average as high as $500 million-$600 million. These
revolver balances are typically repaid by quarter end.

Fitch believes Omnicom has adequate liquidity and flexibility to endure
the downturn, cover any convertible notes put to the company for
repurchase in 2009 and 2010 and dedicate free cash flow to repaying
revolver balances.

As is industry practice, ad agencies typically collect from their
clients prior to paying for media purchases made on behalf of their
clients. As such, Fitch notes that agencies benefit from positive
working capital dynamics (use of client capital as a low-cost source of
financing) and thus typically carry high levels of cash. Fitch
acknowledges that at year-end 2008 the company carried a meaningful
working capital deficit (receivables less payables and customer
advances) of $1.4 billion. Fitch does expect to see some of the working
capital deficit to unwind due to the slowdown in media buying by
clients. However, a significant unwinding of the position is not
expected, though there would be sufficient liquidity to cover the
working capital deficit and cover customer advances, albeit at the cost
of reducing bank revolver availability.

Also, Fitch does not expect any material drain in free cash flow from
funding pension obligations.

In 2008 the company generated $1 billion in free cash flow (FCF), after
dividends, a decline from $1.2 billion in 2007. Fitch expects FCF to
continue to decline but remain positive, likely in the $300 million-$600
million range for 2009 with a modest improvement in 2010.

Omnicom paid $192 million in dividends in 2008. While a reduction in the
dividend would provide additional liquidity, Fitch does not expect the
company to reduce the current dividend level under Fitch's base case
scenario. Fitch would expect Omnicom to take steps to reduce the
dividend if the downturn in advertising is more pronounced than expected
(i.e. organic revenue down around or more than 10% for several
sequential periods) and if working capital swings negatively beyond
Fitch's expectations. Omnicom has not repurchased any of its common
stock since August 2008 and the company has publicly indicated that it
has no plans to resume share repurchases until the credit markets have
begun to stabilize. With the stock repurchases on hold, Fitch expects
FCF to be sufficient to cover earn-outs, limited acquisitions and
meaningful reductions in borrowings under the credit facility (the
company has stated its intention to dedicate FCF toward the repayment of
borrowings under the credit facility).

Growth in the business continued in 2008 although at a slower pace, with
revenue growth of 5.2%, including organic revenue growth of 2.9%, for
the year. The 2008 fourth quarter experienced an organic decline in
revenues of 2.3% and endured a negative foreign currency revenue impact
of 5.8%. This continued in the first quarter of 2009, with organic
revenue down 6.6% and foreign currency driving revenues down 7.8%.

Fitch expects revenues could decline as much as 12%-15% in 2009, with
organic revenue down in the mid-to-high single digits and foreign
exchange compounding revenue pressure. Revenue growth from acquisitions
is expected to provide a modest offset. These declines are driven by
reduced advertising spend and project-related spend by clients due to
clients' focus in reducing cost to weather the current economic
environment. Fitch expects that decline in revenues will be endured by
all GHCs.

While GHCs are exposed to cyclicality on the revenue side, Omnicom's
margins have proven remarkably resilient through economic downturns.
Omnicom's EBITDA margins have varied modestly between 13%-17% from 1990
through 2008, compared with other media subsectors with high operating
leverage, which have more risk in a downturn. These consistent EBITDA
margins are driven by the scalability of the company's cost structure
and management's discipline in executing cost reductions.

EBITDA in 2008 of $2 billion was up slightly from 2007; however, margins
slipped approximately 20 basis points (bps) in 2008 to 15.2%. The
company's largest expense is headcount and related (makes up 71% of
revenues and 84% of expenses, before depreciation and amortization). In
response to revenue declines, the company has reduced its workforce,
reduced incentive compensation for senior executives and froze or
delayed salary increases. Fitch expects margin pressure in 2009, with
margin declines of up to 200 basis points (bps). These types of revenue
and margin fluctuations are incorporated in the current rating as the
company's strong employee utilization measure (revenue per employee)
demonstrates the historical revenue growth and prudent cost controls
Omnicom has delivered.

Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality, conflicts
of interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section of
this site.

SOURCE: Fitch Ratings

Fitch Ratings 
Mike Simonton, CFA, 312-368-3138 (Chicago) 
Rolando Larrondo, 212-908-9189 (New York) 
Cindy Stoller, 212-908-0526 (Media Relations, New York) 
cindy.stoller@fitchratings.com

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