Pension Funding Lands 13 Companies on S&P's Credit Watch

April 15, 2003 ( - Standard & Poor's (S&P) has put 13 companies on watch for possible credit downgrade based on concerns about their pension fund obligations.

The action by S&P comes because of questions the rating agency has about uses for company cash flow, particularly, what portion of that flow that may have to be diverted to cover fund benefit obligations, according to a Dow Jones report.

“It’s a sizable number of companies,” said Scott Sprinzen, an S&P pensions analyst, saying that in the past the agency might have taken separate actions on companies, as was the case with General Motors last week (See  Pension Problems Dent GM’s Credit Rating ).   However, in the case of the most recent announcement, S&P was particularly concerned about the significant group of credits that were identified as being burdened relative to pension and medical issues.

S&P will likely resolve the question of whether or not to change the ratings, in most cases, in the next few weeks, Sprinzen said.   To aid in its decisionmaking, the agency will seek more information from the companies about their benefit plans and funding strategies. It will also probe how conservatively they have estimated their future benefit obligations, and review managements’ strategies for containing benefit costs.

Companies most likely to be downgraded are those with other credit risks besides of large underfunded employee pension and medical obligations.   The 13 companies placed on credit watch negative were:

  • Alcoa Inc
  • Allegheny Technologies Inc
  • Caterpillar Inc
  • Caterpillar Financial Services Corp
  • Consol Energy Inc
  • Cummins Inc
  • Delphi Corp
  • Eaton Corp
  • Kimberly-Clark Corp
  • Pittston Co
  • PPG Industries Inc
  • SBC Communications Inc
  • Visteon Corp.

In addition, the ratings agency revised its long-term outlook for three companies to negative from stable:   DuPont, De Nemours & Co, Eastman Kodak Co and Rockwell Automation Inc.

S&P’s most recent action recalled a similar one it took in February, when it warned it might downgrade a dozen European companies because of pension liabilities (See  Pension Woes Pop Up Across the Pond ).