EUROPE – BNP Paribas has said that it “does not automatically see pensions provisions as debt”, and criticises S&P’s approach to incorporating pensions into credit analysis.

In a European Utilities and Pensions research note, the French bank says that although it recognises ratings agency Standard & Poor’s point in respect of the fixed nature of pension payments for certain utilities, it is “not persuaded by the arguments used in S&P’s complicated approach to the subject”.

The report adds that BNP Paribas has “more sympathy with Fitch’s approach to this difficult area of analysis”.

BNP Paribas analysts Marc Watton and Adrien Fourcade also throw open the argument that pension provisions are like debt – an idea backed by S&P. Says the 83-page report: “We are not completely convinced by the arguments that in any credit analysis of a utility, pension provisions should be treated automatically as debt.”

“Like other provisions and long-term liabilities, pension provisions are a call on future cashflow. We acknowledge that that call is as real as the requirement to pay an interest coupon or repay a bank loan, but equally it is as real as the need to pay employees or suppliers. Non-payment of any of these might be a just cause in due course for the commencement of bankruptcy proceedings,” says the research.

Although BNP Paribas agrees that, due to the inflexibility of the timing of pensions payments, they are a fixed charge on the business, and also says that it is not questioning the liability itself. However, the research says “we are somewhat uncomfortable about treating the liability in a different manner to other long-term provisions.”