Jack Jones examines an unprecendented deal to rescue a scheme from the pensions lifeboat
The £25m CovPress Pension scheme has been taken out of Pension Protection Fund (PPF) assessment after its sponsor was bought out of in administration in the first deal of its kind.
This transaction means that the new owner of CovPress, Liberty House, will support the scheme, and that its approximately 350 members will receive their benefits in full.
The scheme had entered PPF assessment after its sponsor, which makes car components for manufacturers including Jaguar Land Rover, Renault and GM, was put into administration last October.
But Liberty House, an industrial group that has invested heavily in the UK steel industry, agreed to take the scheme on after the firm’s administrator indicated bidders willing to do this would be preferred.
ITS managing director Chris Martin, who chairs the scheme, said the deal was “win, win, win”.
“It’s great news for the members who will get their benefits in full, it’s good for Liberty because it sends such a positive message to their employees, and it’s good for the other creditors because they will get a bigger recovery as there’s no Section 75 debt,” he said.
Why is Liberty House taking on the scheme?
Although the scheme was heading for the PPF with a shortfall of around £15m on an s75 basis, it’s deficit was small change for Liberty House – a multinational conglomerate that turns over billions each year.
The scheme’s new sponsor was also persuaded that the deficit on an ongoing basis was far smaller – in the single digit millions - and the strong covenant given by the new parent company meant the recovery period to plug this gap could be extended.
Martin says the trustees of the scheme agreed an informal scheme valuation with Liberty House before the deal went through to give them confidence in the figures.
LCP partner Timothy Sharples, who advised the buyer, said the potential advantages from the purchase would be “sufficient to cover the additional risks that the business would have from the pension scheme”.
The positives for Liberty House of taking on the scheme include the morale boost given to to CovPress’s workers – around a third of whom are in the scheme.
Had it entered the PPF, no retired members would have seen their starting pensions reduced, and all members would have lost the 3% indexation on their benefits accrued before 1997.
The move to rescue the scheme has also demonstrated the group’s long-term commitment to the sector, and secured it plenty of positive PR.
ITS’s Martin hopes this deal could lead to behavioural change among groups looking to acquire businesses with defined benefit pension liabilities.
“Maybe this will stop them getting spooked automatically because it’s DB,” he said. “When you look at the s75 debt it’s often quite a big number, but in this case the deficit was actually quite manageable on an ongoing basis.”
It’s unlikely there will be many situations where so many factors converge to make a ‘win, win, win’ deal possible, but this transaction might just have set a precedent.