By Dena Aubin
NEW YORK, June 24 (Reuters) - A jumbo bond sale from General Motors Corp. is unlikely to prompt a wave of issuance from companies facing record pension deficits, analysts said.
Accounting standards give so much leeway in financing pension obligations that locking in long-term debt is usually not the most attractive option, they said.
"There's such flexibility built into the timing and amounts of required pension contributions that many companies don't borrow to contribute that up front," said Mark Oline, a Fitch Ratings analyst. "They prefer to contribute as required over a longer time frame."
Companies have faced a "perfect storm" in their pension funds in recent years because stock prices tumbled, hurting investment returns, at the same time that interest rates fell, raising pension obligations, said Greg Clifton, senior accounting analyst at Moody's Investors Service.
Falling rates lower the discount rate used to calculate pension obligations, causing obligations to increase.
Companies in the Standard & Poor's 500 index had a combined $239 billion pension deficit in May, a stunning reversal from their $252 billion surplus in 1999, according to UBS bank.
DOGGED BY MARKET ACCESS WORRIES
GM is facing heftier minimum pension contributions than most companies. Its worldwide $25.4 billion pension deficit is by far the largest of any S&P 500 company, according to UBS.
"GM is doing the prudent thing," said Glenn Reynolds, head of fixed-income research service CreditSights. "They're going to be able to predict with some degree of certainty their ability to fund near term."
News of GM's sale prompted speculation about a potential flood of copycat issues, yet few companies will likely choose debt sales as a way out of their pension holes, analysts said.
"In essence, by borrowing and contributing to the pension, you're locking in the obligation immediately and also incurring financing costs," said Fitch's Oline.
Pumping a lot of of money quickly into pension fund investments instead of making gradual contributions can expose companies to large losses if markets fall.
"You don't want to be in the position of betting on the markets," said Fitch's Oline.
GM is likely prefunding because it cannot be assured of access to capital markets if funding needs rise or the economy weakens, analysts said. Selling pressure hit GM and rival Ford Motor Co.'s. bonds in the U.S. unsecured debt market last year and investor demand has only recently returned.
LOW RATES ENTICE
Some companies have used some bond sale proceeds to help fund pension deficits, but GM is the first U.S. company with a jumbo deal earmarked mostly for that purpose.
GM will sell about $10 billion, most of which will go to narrow its pension gap, while finance unit General Motors Acceptance Corp. is selling about $3 billion for operations.
GM's bond prices weakened after the sale was announced but the automaker will still be able to sell bonds at lower interest rates than prevailed last year.
Ten-year GMAC paper was quoted on Tuesday at a yield of 6.9 percent, or 3.55 percentage points over Treasuries, down from 8.6 percent or 4.60 points over Treasuries in October, according to MarketAxess.
Ford, which has a smaller pension deficit than GM and healthy cash flow, is likely to pay pension contributions over time rather than prefund them, analysts said.
Ford was believed to be considering a bond sale in the U.S. before GM's deal was announced.
"I think Ford will stay away from the U.S. unsecured market until this deal is digested," said Joe McCusker, an analyst for FTN Financial. "This probably derails their plans for a while."