In a European Utilities and Pensions research note, the French bank says that although it recognizes S&P’s point in respect to the inflexibility of pension payments, it is “not persuaded by the arguments used in S&P’s complicated approach to the subject.” Instead, the report says BNP has “more sympathy with Fitch’s approach to this difficult area of analysis,” according to an IP&E report.
This is in conjunction with the other disagreement BNP analysts Marc Watton and Adrien Fourcade had with the S&P rating system – that pension provisions are like debt: “We are not completely convinced by the arguments that in any credit analysis of a utility, pension provisions should be treated automatically as debt”
“Like other provisions and long-term liabilities, pension provisions are a call on future cash flow. We acknowledge that that call is as real as the requirement to pay an interest coupon or repay a bank loan, but equally it is as real as the need to pay employees or suppliers. Non-payment of any of these might be a just cause in due course for the commencement of bankruptcy proceedings,” says the report.
BNP does agree that pension payments are a fixed charge on the business and a liability does exist. However, the report says “we are somewhat uncomfortable about treating the liability in a different manner to other long-term provisions.”