News& Notes: Pension Fund Gap & US Hospital Woes

RCM Comment: The following three stories highlight the viral nature of the current credit crisis.
Pension fund gap hits $100 bln - FT
FT reports US companies will need to inject more than $100 bln into their pension funds to cover market losses, putting them in a cash squeeze at a time when it is difficult to raise money. The cash payment, estimated by several pension industry executives, would be spread over this financial year and next year. Companies' pension fund losses -- running at an estimated 20% in the year to date -- also are expected to alter earnings this year, partly because of accounting changes. The 700 largest corporate plans were more than 100% funded at the end of last year, but as of last week that had fallen to about 83%, according to estimates by Mercer, a pension consultant.

Lockheed, Ryder Drain Cash as Crisis Hammers Pensions By Pat Wechsler and Edmond Lococo
Oct. 29 (Bloomberg) -- A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month's global stock-market collapse.
The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.
``This will be real money that companies will have to come up with,'' said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation's largest retirement plans holding almost half of U.S. assets. ``The law will be forcing people to be taking money out of operations at the worst possible time.''
Aetna Inc., the third-largest U.S. health insurer, said today that pension expenses caused by stock market declines will lop 30 cents to 40 cents a share off next year's operating earnings.
Ryder System Inc.'s pension contributions will ``significantly increase in 2009'' and force ``cost management'' to protect profit, Chief Executive Officer Gregory Swienton told a conference call Oct. 22. The Miami-based, truck-leasing company's plan had $1.5 billion in assets in 2007 and was underfunded by $1 million, according to Standard & Poor's Corp.
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US hospitals may have to buy back $8 bln in debt - FTFT reports US hospitals may be forced to buy back more than $8 bln of debt as a result of turmoil in the credit markets, adding to their burdens just as a weakening economy is draining resources. The problem for the hospitals involves so-called variable rate demand notes and other securities that they have agreed to buy back in some cases. The interest rates on VRDNs reset periodically and investors have the right to reject the new terms and sell the paper back to the issuer or a bank. An estimated $400 bln in VRDNs have been issued in the US and most require banks -- rather than the issuer -- to buy back the debt. However, Moody's Investors Service, the ratings agency, said 24 not-for-profit hospitals in the US have issued $8.4 bln of debt requiring them to buy back the paper. Lisa Martin, senior vice-president at Moody's, said three hospitals -- NorthShore University HealthSystem in Illinois, North Mississippi Health System and Virginia's Riverside Health System -- have had to repurchase such debts. Although they all have sufficient cash to meet their obligations, the repurchases were described as highly unusual by Moody's. In the past, hospitals could usually count on their bankers to find new buyers for such debts. "Three out of 24 might not sound very bad, but it is unprecedented," Ms Martin said. "There has rarely been a situation where a hospital has not been able to find a new buyer."