UK - A fund manager has warned investors may need to tread carefully in the future if they invest in companies with similar pension fund deficit problems, as ratings agency S&P has downgraded BT Group's credit rating amind concerns about its pensions deficit.

BT Group, the parent company of the BT pension scheme, had its long-term credit rating downgraded by Standard & Poor's yesterday by from BBB to BBB- while its short-term credit rating has also been cut from A2 to A3.

On the back of this, Tineke Frikkee, fund manager of the Newton Higher Income fund, said the role of pension deficits at other companies is a factor investors need to be increasingly aware of.

"We believe it is BT specific, related to its significant pension fund deficit. Other telecommunications companies do not have this issue to the same extent," said Frikkee.

"However, it can be read across to companies in other sectors, that also have large pension fund deficits, such as British Airways. Dividend investors should remain aware of the demands pension fund trustees might make that could jeopardise the dividend," he told IPE.

Details of the Standard & Poor's BT Group ratings update said the long-term pension deficit recovery plan and payment schedule recently agreed between BT and the BTPS Trustees "represents a significant long-term cash flow commitment".

S&P said: "We consider that such [pension deficit recovery] payments could constrain the financial flexibility of the group over the medium to long-term in terms of shareholder returns and capital expenditure…we also believe that such payments, while reducing the pension deficit year on year, will not be sufficient to reduce BT's pension and lease-adjusted leverage in the shorter-term closer to a level of 3x, which we would deem more appropriate for the rating."

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email