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Cee money risking popularity, polish pm targets pension age

Adored by voters for avoiding painful reforms during his first four years in power, Polish Prime Minister Donald Tusk is now learning what the economic crisis has already taught his European Union peers: tough policy decisions hurt. After winning re-election last year, he is departing from a take-it-slowly approach to austerity that helped Poland become an EU growth leader with a plan to hike the retirement age to 67. Although he says it is vital to put Poland's public finances on a sustainable footing in the long term, the scheme has ignited public ire and slapped his Civic Platform (PO) party's popularity to its lowest level since it first won power in 2007. Surveys show some 85 percent of Poles oppose the plan, which would raise the pension age from 65 for men and 60 for women."My father has worked for so many years, he is tired and wants to have some rest finally. But even uder the current rules he is not entitled to retire yet, so how will we be able to bear even more years at work?," said Anna Gach, smoking a cigarette outside a Warsaw snack bar where she works."I'm in my early twenties, so for me it's even hard to imagine such a distant future right now, but when I look at my dad, I know the same will happen to me, so I'm against," she added. Public anger, as well as criticism from opposition parties and from within his own ruling coalition, have raised fears that Tusk may be forced to dilute or even abandon the plan. But as he must also calm investors spooked by the euro zone crisis, Tusk seems determined to push ahead even at the cost of a further slide in support."We have to raise retirement age if we are to avoid financial chaos or landing on the margins of poverty. This is a painful but an indispensable decision," he said last month.

FALLING SUPPORT While the neighbouring Czechs and Slovaks have tried to tackle structural issues that pose long-term budget risks, some economists were worried by Tusk's reluctance to do the same during his first tenure as prime minister. He even surprised voters and investors last year by partially unravelling a landmark pension reform from 1999 by diverting some of the contributions workers make to private pension accounts into the state budget to help cut the deficit. That approach, which analysts said was a step backward in reforms, has still been fruitful on the growth front .

Poland was the only country to avert recession at the height of the economic crisis three years ago and last year's growth - 4.3 percent - was exceeded in the EU only by rebounding Latvia and Lithuania. Now Tusk is eliminating privileged pensions for certain groups, cutting tax loopholes, raising disability contributions and taxing some commodity production. That will likely cause growth to slow somewhat while also helping Tusk bring the budget deficit below the EU's prescribed ceiling of 3 percent of annual output. But it will not address the longer term problem of Poland's ageing population. Without the reform, Warsaw expects the pension system deficit to more than double to 106 billion zlotys ($34.25 billion), or 2.7 percent of last year's economic output, by 2030, from just 41 billion seen in 2013 now. Overall, the ratio of working age Poles to pensioners would fall from 4.1 to 1 now to 2 to 1 in 2040 and 1.4 to 1 in 2060.

"The later you do it, the higher the target age must be and the more painful it gets," said Neil Shearing, Chief Emerging Markets economist at Capital Economics. "These are always unpopular measures ... but the big question is if not Civic Platform then who? And if not now, when?"Women workers aged 38 today would be the first to retire at 67 years in 2040, a scheme that surpasses anything done by any of Poland's major regional peers apart from the Czech Republic and puts retirement age on a par with euro zone powerhouse Germany. REFORM FIGHT The proposal has already contributed to the decline in Tusk's Civic Platform support, which has fallen to 28 percent from the 39 percent it won in an October election. One objection from voters and the opposition is that by raising the retirement age, it will put more pressure on an already difficult employment situation in a country where a fifth of Poles aged 18-25 are out of work."Pensions are really about your own savings. There is no point in counting on the state, even if they raise the retirement age. But if they do, they should ensure enough jobs, both for the elderly and the young," said a Warsaw photo shop manager Magdalena Kaczmarek. Tusk's junior coalition partner, the rural Peasants' Party (PSL), has also come up with ideas to dilute the reform in a push to appeal to voters but political pundits say that is unlikely to derail the plan or trigger a government collapse. Tusk is fully aware of the cost to his political future, but he also has until late 2015 to rebuild flagging support."It's not the greatest achievement to commit political suicide, but equally it's not the greatest achievement to win an election and not to what needs to be done," Tusk said.

Energy companies drain loans before banks clamp down

Troubled U.S. energy companies, maneuvering for stronger negotiating positions if filing for bankruptcy, are racing to tap cash still available under existing reserve-based loan commitments before banks cut their credit access next month. In April, lenders, in semi-annual valuations of oil and gas reserves backing these loans, are expected to cut available credit to many energy companies based on deeply depressed collateral prices. Earlier in March, Stone Energy (SGY. N) joined a growing pack of companies, including SandRidge Energy SDOC. PK and Linn Energy LINE. O, drawing down the full amount remaining under its credit facility. Stone also said its borrowing base likely will be cut below its current borrowings during the spring redeterminations.“Every company out there is nervous that if they don’t draw in the next couple of weeks, with determinations coming up, banks will finally start saying ‘no,’” an investor said. Drawing down cash before banks’ contractual commitments change is a tactic used widely in other previously troubled industries, including autos and airlines. These “extraordinary draws” are a new concept in the oil and gas sector, said Buddy Clark, partner at Haynes and Boone in Houston. Without sufficient cash, a company in bankruptcy would typically need debtor-in-possession (DIP) financing.“When providing a DIP, lenders will want to button down everything that hasn’t already been pledged as collateral,” he said. “Having unencumbered assets in a bankruptcy gives the debtor a bargaining chip with the various constituents at the table, which they would likely have to give up in order to get a DIP loan.”About one-third of all energy companies may fail unless prices recover, consulting firm Deloitte said last month.

More than a dozen companies, with debt totaling up to US$17bn to US$19bn, are already in default on interest payments, said Clark.“There’s just an incredible amount of money out there that’s exposed under these reserve-based loans,” he said. “Even if oil prices were to bounce up to US$50 or US$65, a lot of these companies are already mortally wounded. A lot of them are looking for options, and bankruptcy is one of the obvious options.”Banks are seen clamping down more aggressively on reserve-based lending than last fall, based on extended asset price weakness. SLIPPERY SLOPE

Stone Energy, one of the most recent examples, in announcing its revolver draw also said it had hired Lazard and Latham & Watkins to help review strategic alternatives.“Fully drawing down an asset-based loan revolver is a very strong indicator that some sort of bankruptcy or restructuring is coming for troubled commodity sector companies,” said Sharon Bonelli, senior director, leveraged finance, at Fitch Ratings. Typically, companies exceeding their maximum borrowing base because of a downward redetermination have a set period to reduce overages to get back into compliance.“They could do that by paying down debt if they could raise new capital, which would be very difficult for an energy company right now from a debt market offering, or they could try to sell an asset,” Bonelli said. “If they can’t reduce the overage, then that’s a default.”

Defaults are seen escalating. The impact will be less in the loan market than in the high-yield bond market, which has at least triple the exposure to oil and gas companies. ADDING PROTECTIONS In addition to cutting revolving credit access, and holding more reserves to buffer losses, banks are seen adding new protections.“Going forward, we’re seeing banks requiring borrowers to agree to new anti-hoarding provisions, which prevent borrowers from drawing down the full amount of availability under their loans and sitting on the cash,” said Clark. “Anti-hoarding provisions permit borrowers to draw what they need to use for operations but not to build a war chest for a company readying itself for bankruptcy.”Ultimately, new oil and gas company loans will tougher to get, industry experts agree.“It will be harder for non-energy focused banks to want to participate in the industry, if they have to go fight for their money in this downturn,” the investor said.