DuPont Co. said Thursday that it will borrow up to $2 billion in new, senior, unsecured 3-year notes, to fund contributions to its U.S. pension plan. Moody's Investor Service rated the notes A3.
The debt is to be paid after DuPont merges with Dow Chemical Co. and spins off their joint pesticides business as a new company or sets up what's left of DuPont as a "specialty products" company. The notes will be unaffected by the separation of a planned "materials" company made up mostly of Dow businesses.
Moody's continues to post a "negative" outlook on DuPont debt, noting that "DuPont will be a smaller, less diversified company" after the breakup.
It's an "unusual development," Carol Levenson, analyst for Gimme Credit LLC, said in a report to clients.
She noted that the DuPont plan's liabilities exceeded assets by $6 billion at year end. "Apparently, borrowing is a more tax-efficient way" to boost the fund than paying cash directly, Levenson added. She predicted the bonds may be difficult to sell until Dow and DuPont explain more details about the capital and financial structures of their successor companies.
Lawrence Craig Skaggs, a retired DuPont lobbyist who notes that more than 7,000 ex-DuPonters have joined his DuPont Pensioners Facebook page, says he hopes the company will have more to say about the future of its international pension plan.
He expects DuPont may copy other companies in attempting to "derisk" its pension plans and replace payments with insurance annuities where contracts and laws permit the change.