Actuarial valuations – lessons from Heraclea and Asculum

Neil Copeland

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S&P – to be clear, Standard & Poors, not Spence & Partners – has downgraded BT’s credit rating as a result of concerns over how it is proposing to manage its pension deficit.

S&P credit analyst Michael O’Brien comments:

“We consider that such payments could constrain the financial flexibility of the group over the medium to long term in terms of shareholder returns and capital expenditures, or from a strategic perspective as the intensely competitive telecoms industry environment evolves.”

“We also believe that such payments, while reducing the pension deficit year on year, will not be sufficient to reduce BT’s pension- and lease-adjusted leverage in the short term closer to a level of 3x, which we would deem more appropriate for the rating.”

The Pensions Regulator has also expressed concerns about BT’s funding proposals.

BT may have congratulated itself on negotiating a lower short term deficit contribution than might otherwise have been the case, and would probably not wish to see the negotiation categorised as a “victory” for one side or the other. However, having seen a 4.4% fall in his share price, Sir Michael Rake will clearly empathise with Pyrrhus, king of Epirus, who nearly said “”If we are victorious in one more battle with the trustees, we shall be utterly ruined.”

Neil Copeland

Post by Neil Copeland

Director, pensions consultant and adviser to trustees and employers on all aspects of work based pension schemes.