Valvoline to Make $400 Million Pension Contribution

Valvoline, a producer of automotive, commercial, and industrial lubricants, said it will make a voluntary $400 million contribution to its US qualified pension, which it plans to fund through a senior notes offering.

“Valvoline is taking action to reduce risk and long-term volatility of its underfunded pension obligations,” said the company in its 8-K SEC filing reporting its Q3 results.

“A contribution at this time is a strategic opportunity based on the current interest rate environment, scheduled Pension Benefit Guaranty Corporation (PBGC) premium rate increases, and potential future changes to the US tax code,” said the company.

It also said that the savings related to lower PBGC premiums makes the pension contribution “net-present value positive.”

In order to raise the money to fund its pension, Valvoline launched an offering of $400 million aggregate principal amount of 4.375% senior notes due 2025. The offering is expected to close Aug. 8.

“Overall, the amount of balance sheet obligations will not change,” said the company regarding its raising of debt for the pensions contribution.

Valvoline joins a growing list of companies that have made large voluntary contributions to their pensions plans in 2017, including Verizon, Delta Air Lines, FedEx, International Paper, DuPont, Sears, and Kroger.

Like Valvoline, rising PBGC fees have spurred many companies to increase their funding level to reduce their liabilities, which, in turn, lowers their PBGC variable-rate premiums.

They are also motivated by potential tax code changes that could lower the amount companies can deduct from their pension contributions. Tax laws currently allow pension sponsors to take a deduction on their  pension contributions that is based on their tax rate. Therefore, if the tax code is changed so that it lowers corporate taxes, which is what many are expecting, then it would also lower the amount that can be deducted.