EUROPE - Ratings agency Standard & Poor's is urging European corporate pension funds to improve their disclosure in a bid to evaluate the potential impact of funding gaps on credit ratings.
S&P said that companies needed to increase the quality and frequency of their information on pensions, particularly amid a continuing decline in share prices and an ageing European population.
Overall, the study shows that financial flexibility is heavily affected by unfunded post-employment obligations for just a small number of companies, said Emmanuel Dubois-Pelerin, a director of S&P's corporate ratings, Europe.
Nevertheless, even in these cases, although credit metrics are stretched, this flexibility remains sufficient at current rating levels,” said the report.
“Moreover, there is no systematic sectoral bias, and only Germany shows any geographical bias, posting a higher-than-average proportion of companies with significant unfunded commitments.
The survey covered more than 500 rated corporate and infrastructure issuers throughout the major European markets and was based on financial year-end 2001 disclosures, as interim valuations were generally unavailable.
Preliminary findings indicated that under 5% of rated European corporations have “very substantial” unfunded post-employment liabilities.
As yet, there are no rated companies in Europe where the scale of these deficits is an immediate rating concern. This may be due to situations where the liability exists without a legal obligation to fund it. In other cases, the size of the liability is small relative to the overall continued financial flexibility of the company.
But as Dubois-Pelerin pointed out, with financial year 2002 data scarce, and given ongoing market volatility, this might change.
It is difficult to determine with certainty whether certain companies that at the last financial year-end were fully funded would not incur significant gaps at the next full-year reporting dates,” he added.
“As a result, Standard & Poor's will continue to factor the evolution of the unfunded pension positions in its ratings.
The research study, entitled European Corporates Reveal Poor Pensions Disclosure, is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.RatingsDirect.com.
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