UK/EUROPE - Fund managers have attacked ratings agencies over the downgrading of companies with pension fund deficits, which they claim has caused bond market volatility.
The attacks come after beleaguered aerospace giant BAe Systems became the first UK company to be downgraded by Moody’s because of its scheme deficit of £2.2bn.
German steel giant ThyssenKrupp was also downgraded by Standard & Poor’s to junk status due to its pension problems.
Axa Investment Management head of UK fixed income Denis Gould said: “The rating agencies have a duty to take all factors into account when assigning ratings.
“They also have a duty not to precipitate credit problems for companies.”
He said: “Long criticised for being too slow to react, agencies have to be careful not to go too far the other way.
“The market will often assume that the rating agencies have more information than it does, and will read a strongly worded statement in this light.”
An agency, therefore, needs to be careful how it expresses its views if it is not to become part of a downward spiral of credit problems, he explained.
Isis Asset Management head of bonds and treasury, Andrew Tunks, said that while it was “reasonable” for agencies to look at pensions, companies should not be downgraded because of them.
He said that firms are required to make good on their other debts, and they only have a moral – not legal – obligation to pay pensions.
Tunks said: “Agencies need to take into account that these are obligations that companies can walk away from.
“Companies are not required to make good on these deficits on a daily basis. Pension deficits are not the same as regular debt.”
But State Street Global Advisors head of fixed income Mark Talbot said that while agencies have added to market instability, they are right to look at schemes.
He said: “You can argue that certain agencies have been overzealous, but the problem clearly needs to be addressed in some form or another.”
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