Pension Liabilities Threaten Some U.S. Retailer Credit Quality

Pension and other post-retirement liabilities pose a threat to the credit quality of some of America’s largest retailers, such as Sears and Macy’s, according to Standard & Poor’s.

“Standard & Poor’s Ratings Services believes that the funded statuses for many corporate defined benefit pension plans (as well as funded other postretirement plans) have deteriorated substantially. As a result, we believe many companies now are facing larger unfunded pension and other postretirement burdens than in recent years. Standard & Poor’s treats the tax-adjusted unfunded balance of these plans as debt-like obligations and adds this amount to reported debt for purposes of our analysis.”

We believe that, in addition to resulting in higher adjusted debt levels, contribution requirements will likely increase for the U.S. retail companies we rate that have larger unfunded pension balances.

“However, the size of contribution requirements over the next few years could fluctuate due to a number of factors, including future market performance or potential regulatory changes to the required timing of minimum pension contributions. Currently, accounting and financial reporting requirements only oblige companies to disclose the pension contributions they expect to make for one subsequent year. Hence, in 2008 10K filings, companies only had to disclose expected pension contributions for 2009.”

According to S&P, the retail companies with the greatest unfunded pension and post-retirement liabilities are: Sears Holdings Corp. (NASDAQ: SHLD), Macy’s Inc. (NYSE:M), Safeway Inc.(NYSE:SWY) and Kroger Co. (NYSE:KR).

For details see: How Unfunded Postretirement Benefits Could Weaken The Credit Quality Of Some U.S. Retailers.