FASB's proposal to place unfunded pension liabilities on corporate balance sheets could lead to breaches in lending covenants at some companies because of the resulting reduction in shareholder equity value, Louise Purtle, senior analyst-macro strategy at fixed-income research firm CreditSights, said in a webcast for clients today. However, competitive lending markets will permit companies to negotiate waivers or refinancing and make it unlikely financing would suffer, she added.
The Financial Accounting Standards Board expects by the end of the year to adopt its proposal to require companies to recognize the funded status of pension plan in their financial statements.
Ms. Purtle said more than 80% of S&P 500 companies with defined benefit plans are underfunded by an average of $407 million in 2005, down from $463 million in 2004. Total pension underfunding of S&P 500 companies with defined benefit plans is $139.5 billion, or 1.2% of their market capitalization.