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M&S to issue bonds to aid pension shortfall

UK – Marks & Spencer says it will issue bonds to fund a 400 million-pound (600 million-euro) injection into its 2.6 billion-pound UK defined benefit pension scheme.

The statement follows the completion of an actuarial valuation as of March 31 2003 – which revealed a shortfall of 585 million pounds, representing a funding level of 82%.

“As a result of this valuation Marks & Spencer intends to make a capital injection of 400 million pounds into the scheme by the end of March 2004, increasing the funding level to 94%,” the company said in a statement.

“The injection will be funded, subject to market conditions, through a public bond issue.”

The scheme, which has a total of 130,900 members, was closed to new entrants in 2002 and replaced with a defined contribution scheme.

The company also said it would adopt the FRS17 pension accounting standard for the year ending April 3 2004, adding that it estimates a pre-tax charge under FRS17 of 134 million pounds.

“Marks & Spencer is committed to ensuring the Defined Benefit Pension Scheme is adequately funded,” said M&S finance director Alison Reed. “By taking this action we are providing reassurance to the scheme members.”

“We believe that this is an opportune time to raise the funds, taking into account current interest rates and demand in the corporate bond markets.”

Ratings agency Standard & Poor’s said the injection did not affect its A/Stable/A-1 rating on the company.

“Although Standard & Poor's considers unfunded pension obligations as debt-like, the additional contribution is considered to be essentially neutral, as an increase in the company's financial debt is matched by a similar decrease in its pension deficit.”

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