December 1, 2009 / 1:18 PM / in 8 years

UPDATE 2-CP Rail to pay C$500 mln into pension plan

* Says to voluntarily prepay C$500 mln into pension plan

* Says this will reduce volatility in future funding needs

* Analyst says move disappointing but not unexpected (Adds analyst’s comment; stock price)

TORONTO, Dec 1 (Reuters) - Canadian Pacific Railway Ltd CP.TO said on Tuesday it plans to accelerate funding of future pension obligations through a voluntary prepayment in December of about C$500 million ($476 million), a move an analyst said was disappointing although not unexpected.

The prepayment into its Canadian defined benefit pension plan will be made using cash on hand and help to reduce volatility in future pension funding requirements and make cash flows more predictable, the railroad company said in a statement.

The contribution is “certainly not a positive development as we believe it would have been more constructive to see that cash put to better use in the business,” RBC Capital Markets analyst Walter Spracklin said in a research note to clients.

He added, however, that the payment was expected after CP raised the C$500 million in an equity issue earlier this year.

It will have a minimal impact on earnings, Spracklin said.

Calgary-based CP, Canada’s No. 2 railway, now estimates its 2010 pension contributions to be between C$150 million and C$200 million after application of a portion of the prepayment. It had previously forecast that pension contributions would range between C$250 million and C$300 million.

CP’s shares ended up 93 Canadian cents, or 1.8 percent, at C$51.90 on the Toronto Stock Exchange on Tuesday.

$1=$1.05 Canadian Reporting by Euan Rocha and Nicole Mordant, editing by Peter Galloway euan.rocha@thomsonreuters.com; +1 416 941 8185; Reuters Messaging: euan.rocha.reuters.com@reuters.net

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