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(Adds details, comment.) By Michael Carolan and Molly Neal Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Global drinks giant Diageo PLC (DEO) said Thursday it will flood its GBP862 million pension deficit with whisky, as it becomes the latest U.K. company to use unusual assets to solve pension headaches. Where retailers have used real estate and British Airways has used planes as security for its pension trustees, Diageo is pledging up to 2.5 million barrels of its maturing whisky--enough to fill around 180 Olympic swimming pools. The transfer of whisky to its U.K. pension fund is part of a 10-year funding plan Diageo has agreed with its trustees. As the world's largest whisky producer, with brands such as Johnnie Walker and Talisker, Diageo will use some of the highly valuable barrels of whisky it has maturing in warehouses across Scotland. The liquid stock held by the scheme will come from Diageo's malt and grain distilleries in Scotland and represents around 30% of Diageo's total whisky stock. While the Diageo deal seems unique in its use of whisky, the rationale behind it is no different to a raft of recent property-based pension deals, said independent pension consultant John Ralfe. "Companies are looking for corporate assets which they can pledge to pension schemes which mean they don't have to put in cash," he said. Diageo's move follows similar schemes from other U.K. companies that have used non-cash assets to boost their pension funds. Hotel and restaurant group Whitbread PLC (WTB.LN), J Sainsbury PLC (SBRY.LN) and Marks & Spencer Group PLC (MKS.LN) have all put real estate assets, in the form of hotels, restaurants or stores, into their pension funds. In 2006, British Airways PLC (BAY.LN) gave its pension trustees rights over aircraft in the event of insolvency and last week BA agreed a deal giving pension trustees GBP250 million in security against aircraft, property or cash. Automotive and aerospace parts company GKN PLC (GKN.LN) agreed a deal in April using royalty payments from the use of its name, as well as rental income from property as assets to plug its deficit. Ian Warman, pensions partner at advisory firm KPMG said almost any form of asset could be used either as a contingent security or to generate an income stream for a pension fund. Marc Hommel, pensions partner at advisory firm PricewaterhouseCoopers, said he has seen "an exponential increase in the use of non-cash funding for U.K. pension schemes because deficits are large and trustees are under pressure to ensure deficits are plugged as quickly as possible." He said there has been "a far greater use and far greater diversity in the type of assets" put into pension funds. The unusual assets, whether property, royalties on a brand, or a stake in a subsidiary, are used as security for the trustees in the event of insolvency and allow the company to make lower cash payments as a result, he said. While the practice is most common in the U.K., it is starting to become more prevalent elsewhere, with corporates in the U.S., Canada and the Netherlands considering the feasibility of the structure, said Hommel. The liquid held by Diageo's pension scheme will be a maximum of three years old and will therefore not be old enough to be bottled as whisky. Once the liquid reaches three years old and becomes usable, Diageo will take back the stock and replace it with fresh liquid, thereby ensuring that the value of the stock held remains constant at GBP430 million. After 15 years, the pension trustee will sell its share of the partnership back to Diageo for an amount equal to the remaining deficit and no more than GBP430 million. The deal provides the pension fund with an immediate and significant reduction in its deficit, a spokesman for Diageo said, while having no impact on the drinks giant's free cashflow. It also ensures Diageo retains complete control over its ability to use the liquid, he said. Given that Diageo has been paying GBP50 million per year to its U.K. scheme since 2007, the new pension provisions will be broadly cash flow neutral and will have no impact on the value of Diageo's net assets. Diageo will continue to make the annual GBP50 million payments and also made a one-off payment of GBP197 million into the U.K. pension fund as agreed under the 2006 funding plan. Diageo said that its "significant" pension deficit of GBP862 million was because the valuation was carried out during "an unusually volatile" time, with historical lows in both asset values and interest rates. The Diageo spokesman said the deficit was not significant when compared with Diageo's assets and cash flow however and will be much lower when Diageo reports its results in August. Diageo's pension scheme has 62,000 members of which 4,000 are current employees. -By Michael Carolan and Molly Neal, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com (Kaveri Niththyananthan contributed to this article.) (END) Dow Jones Newswires July 01, 2010 12:10 ET (16:10 GMT)