I think a lot depends on the relative market prospects, the operational considerations of the entity in question, and then the duration. Sure, in pure market theory, if the only chance for me to get 100% paid was if the pension was 100% funded, I would press for the pension to be 100% funded so that I get 100% paid. The alternative, though, is that if I believe there is some other mechanism by which I could get 100% paid, I might pursue it.
Notably, if I know that you have a large unfunded pension liability, I may make a couple of other choices. One is I may charge you a lot for that capital, which may force you into a liquidation because you may not be able to access it at that price. The second is I might try to be the first. This is one of the principles of our insolvency system. We have what we term a “prevention against the race to the courthouse”. That's why we make all the creditors come together, line up and figure out exactly where they fit and how they go. Then we treat them, class by class, in that consideration.
One of the fears is that you might incentivize a race, not to the courthouse but to call in your loan, in that if you actually had an existing liability with the entity, if you thought you could go before your competitors and if you knew they had other secured lenders and you could potentially get your piece of the pie back before they went insolvent, you would do that. You would try to get paid, but that would force the entity into liquidation sooner and potentially prevent the restructuring we were hoping for.
While in theory this could put on pressure, we also potentially need to look at time frame and amount. As we noted, pension regulations vary enormously from jurisdiction to jurisdiction, so in some cases, that pension liability is going to be [Technical difficulty—Editor] up, but what's the time frame in which you're going to put pressure on me to make it back? I can only really make it back to the degree to which I either have sufficient excess working capital that I can defer to my pension obligations rather than my working capital, or I have market returns that potentially need to generate that mix.
One potential unintended consequence of that pressure is that I actually pursue a much riskier investment scheme with those pension funds in order to make back that portion. Your pressure on me when you say, “Mark, you need to be 100% funded in two years or I'm calling my loan,” means I'm suddenly saying, “Oh man, I need to make up that gap,” so I race out and make very risky investments that may or may not pay off but will ultimately lead to the outcome you are seeking as my creditor.
I think we'd have to consider a number of these factors when we look at whether it will apply pressure from lenders towards the good outcome of a fully funded pension, or whether we will see unintended consequences. These could include early liquidations, races to call in loans, and potentially riskier mechanisms and stewardship of pension funds by plan sponsors to be able to meet the requirements of their lenders.