Drew Hasselback Jun 23, 2011 – 2:40 PM ET Moody’s Investors Service has taken a look at how the Indalex Ltd. pension decision could impact’s the credit ratings of the companies the agency follows.
The Ontario Court of Appeal ruled in April that pension claims have super-priority status when it comes to workouts. Indalex is seeking leave to appeal the decision to the Supreme Court of Canada.
On its face, Moody’s says this is “credit negative” for Canadian companies with underfunded defined benefit pension plans. After taking a deeper look at the 84 companies Moody’s currently rates, it found that only two, Air Canada and Essar Steel Algoma Inc., would be vulnerable for a ratings downgrade if the decision stands. Neither of those companies have investment grade ratings.
One of the reasons for the slight impact is that Moody’s already considers underfunded pension liabilities to form part of a company’s overall debts.
Moody’s says the decision would only impact instrument-level ratings. Bill Wolfe, a Moody’s vice president and senior credit officer, said:
Posted in: FP Street, Legal Post Tags: Bill Wolfe, Moody, Re Indalex“The ruling does not change how we measure debt and other liabilities, but it does change the priority of claim and the relative ranking of liabilities, which is relevant when assessing individual debt-instrument ratings. On this basis, we expect that only instrument-level ratings will be affected by the ruling.”
