Underfunded Pension Plans: Hard Asset Solution?

| About: YRC Worldwide, (YRCW)

Could this be a harbinger of how massively underfunded corporate pension plans intend on tackling the seemingly insurmountable problem of upcoming pension obligations? In an 8-K released earlier, trucker YRC Worldwide (NASDAQ:YRCW) has come up with a novel solution:

The Company is seeking to provide certain of the Company’s real estate as collateral to the Pension Funds in lieu of making payments of contributions for certain to-be-agreed-upon months. Depending on employment levels (which, in turn, are driven by freight levels and seasonal changes in those levels), the Company makes multi-employer pension contributions of $34-45 million per month. The Company does not expect any agreed-upon transactions to impact the current or future benefits of employees participating in these Pension Funds.

While it is somewhat doubtful that the Teamsters would prefer to get some green acres here and there (probably valued at 2006-peak levels) instead of cold, hard cash, the logical question is how happy creditors would be to allow collateral carve outs in order to keep the company's employees happy.

The Company is seeking for its lenders under the Credit Agreement to permit the release of specified real estate to secure deferred Pension Fund payments as a non-mutually exclusive alternative to allowing the Company to sell real estate or enter into sale/leaseback transactions. The Company believes these alternatives can allow the Company to utilize the real estate to its maximum benefit as opportunities arise.

Maybe companies have realized that now they have the leverage upside as banks would be happy to oblige even the most insane of demands. Even if successful, the billions in underfunded pensions at companies such as Lockheed (NYSE:LMT), Raytheon (NYSE:RTN), Alcoa (NYSE:AA), and J&J (NYSE:JNJ) will hardly be as easily shifted to hard assets instead of cash, absent a wholesale lender uprising.