United Parcel Service Inc., Atlanta, plans a benchmark sale of debt to fund early contributions to its U.S. pension plans as companies face soaring future retirement obligations.
Proceeds from the debt due in 2021 and 2040 will be used to fund domestic pension plans whose contributions are otherwise payable over five years, according to a regulatory filing on Monday. UPS’ U.S. pension plans, with $16 billion in total assets, were underfunded by $2.41 billion on Dec. 31, improved from $3.49 billion a year earlier, according to its most recent annual report.
UPS’ notes due January 2021 may yield 65 basis points to 70 basis points more than similar-maturity U.S. Treasuries, and its 30-year bonds may pay a spread of 85 basis points to 90 basis points, according to a person familiar with the transaction. The notes may be issued as soon as Monday, said the person, who declined to be identified because terms aren’t set. Benchmark sales are typically at least $500 million.
Norman Black, a spokesman for UPS, said he couldn’t discuss details of how the company plans to use the proceeds of the debt sale.
UPS’ pension was overfunded by $2.49 billion in December 2007, according to its 2008 annual report. The company has pension funding commitments of about $1 billion a year through 2012, and the amount declines to $509 million in 2013, the company’s 2009 annual report shows.
UPS last issued debt in March 2009, when the company sold $2 billion of five-year and 10-year notes, according to data compiled by Bloomberg.