Deutsche Post DHL plans further funding of pension obligations
- Issuance of up to EUR 2.0 billion via a convertible bond and two conventional bonds
- Transaction expected to improve operating cash flow and have a positive impact on earnings
- CFO Larry Rosen: "A beneficial step"
Deutsche Post DHL, the world's leading mail and logistics group, is taking advantage of the favorable capital-market conditions currently available to companies with a strong credit quality to obtain long-term funding for a further portion of its pension obligations. The Group plans to use an array of financing instruments to secure funds up to EUR 2.0 billion in total for this purpose. The capital raised will be used to almost double the plan assets available for the pensions paid to German employees. The company expects this step to improve its operating cash flow in coming years because a larger share of pension payments can be made from plan assets as well as from the returns generated by the investment of these funds. Furthermore, the Group expects to see a small positive effect on the Group's financial result and its net income.
"This step makes sense in several ways: We expect a positive effect on our earnings and an improvement in our cash flow," said Larry Rosen, the CFO of Deutsche Post DHL. "At the same time, our employees benefit from the additional security of knowing that the financing of their pensions has been separated from the company’s business performance."
Bonds to be issued today
The bonds are expected to be issued today. In this process, the Group is using a combination of various instruments with different terms. Both the volume of the individual issues and the exact conditions will be based on market conditions. The company plans to place a convertible bond with a volume of up to EUR 1.0 billion and a seven-year term. The bond can be redeemed by Deutsche Post DHL no earlier than five years after issuance. The Group is using an authorization from the Annual General Meeting in 2011 to issue the convertible bond, which provides for an exclusion of subscription rights. In addition to the convertible bond, the company plans to issue two conventional bonds with terms of eight years and 12 years, respectively. The two bonds are planned to have a total volume of around EUR 1.0 billion.
The company currently has a Moody's credit rating of Baa1. The outlook on the Moody's rating was raised to "positive" at the end of September as a result of Deutsche Post DHL's continued successful business performance and improvement in key credit metrics. In mid-November, Fitch Ratings issued the Group a BBB+ rating with a stable outlook as a result of the company's financial stability and the exceptional position its four divisions maintain in the global logistics business as well as in the German mail and parcel market.