U.S. Pension Obligations May Increase Pressure On Credit Ratings

Low interest rates accompanied by a continuing drop in U.S. defined benefit pension plan asset values due to stock market declines are increasing pension funding requirements and could pressure U.S. company cash flows to a point where downgrades are necessary, according to Moody’s Investors Service. However, no rating downgrades based solely on pension-related issues are expected at this time. The ratings agency said that the current economic environment and underfunded status of many defined benefit pension plans demand increased scrutiny of a company’s pension liabilities and costs, and funding requirements. ‘Moody’s places its greatest emphasis on assessing future cash flow requirements needed to fund companies’ defined benefit pension plans,’ says Moody’s Senior Vice President Steve Oman in a new rating methodology report on pension obligations. ‘When required contributions appear likely to exceed a company’s internal funding capabilities, or could impair the company’s ability to make critical business investments, a reassessment of the rating may be warranted.’


Related reading