United Parcel Service Inc., Atlanta, issued $1.5 billion in bonds and plans to use part of the net proceeds from the sale to make early contributions to its U.S. pension plans, the company disclosed in a recent filing with the Securities and Exchange Commission.
UPS specifically intends to use the bond proceeds "to make early contributions to certain of our primary domestic pension plans, to repay commercial paper and for general corporate purposes," the Tuesday filing said.
"The offering closed today and we issued $1.5 billion in long-term debt with varying maturities," a UPS spokesman said in an email Friday. "UPS routinely accesses public debt markets to satisfy its capital requirements," the spokesman later added.
In February, UPS disclosed in its 10-K filing with the SEC that it expected to contribute $2 billion to its U.S. pension plans this year, after having contributed $19 million to the plans last year and $7.3 billion in 2017.
As of Dec. 31, the company's U.S. pension plan assets totaled $39.55 billion, while projected benefit obligations totaled $45.33 billion, for a funding ratio of 87.3%, down from 91.5% a year earlier.
News of the bond issuance came days after Moody's Investors Service downgraded UPS' senior unsecured rating to A2 from A1, noting the outlook for the firm remains "negative."
"The downgrade reflects our view that UPS will not generate sufficient cash to strengthen its balance sheet while it remains in the midst of a capital intensive period of heavy investment and requisite pension funding, and shareholder returns continue," Moody's Senior Vice President Jonathan Root wrote in an Aug. 9 note.
"The negative outlook reflects what we believe will remain a challenging operating environment and the compounding effect of prospective material pension funding needs that will render the company reliant upon the debt capital markets, even if share repurchases are further tempered," Mr. Root later added in the note.
On Wednesday, in another analyst note, Moody's said the company's $1.5 billion bond issuance did not affect its existing A2 senior unsecured rating for UPS or its negative outlook for the company.