Behind the scenes of Jessops’ pensions deal

Early autumn, 2009. A meeting room with a long table. Coffee-fuelled negotiations lasting long into the night.

We can only imagine the scene in 2009 as Jessops, the camera retailer, contemplated entering insolvency.

Jessops

One thing is for sure: the company’s pension scheme would have been represented at the negotiating table. A representative of the Pension Protection Fund is likely to have been there, too, given the gravity of the camera seller’s situation.

HSBC would have been represented at the table; the bank took control of Jessops’ operating company after a total restructure, which involved a debt for equity swap.

Although Jessops’ pension scheme technically owned 33% of Jessops’ business between September 2009 and March 2011, it seems that the intention was always to pass the scheme – and its stake in Jessops – on to the PPF

The swap left HSBC owning 47% of the company, an employee benefit trust owning 20%, and Jessops’ pension scheme with the remaining 33% stake. At the same time, Jessops’ pension scheme entered the PPF’s assessment period.

The PPF confirms: “The Jessop Group pension scheme entered a PPF assessment period in September 2009 and transferred to the PPF March in [sic] 2011. The pension scheme did take a stake in the company in 2009 which passed to the PPF.”

Although Jessops’ pension scheme technically owned 33% of Jessops’ business between September 2009 and March 2011, it seems that the intention was always to pass the scheme – and its stake in Jessops – on to the PPF.

The 33% stake forms part of the PPF’s “anti-embarrassment formula”, says Charles Magoffin, a partner at law firm Freshfields.

As part of this formula, the PPF often keeps a one-third stake in businesses going through insolvency to make sure that a company does not shed its pension liabilities, bounce back and recommence successful trading, without the PPF receiving a share of the profits.

“These stakes are taken so the scheme can share in any turn round of the business,” explains the PPF.

I would be astounded if there wasn’t some mitigation paid over in addition to the 33% stake

Magoffin and Simon Kew, director of pensions at corporate insolvency experts Jackal Advisory both think that the PPF would have negotiated a cash payment as a second condition of Jessops’ pension scheme’s entry into the PPF.

“I would be astounded if there wasn’t some mitigation paid over in addition to the 33% stake,” says Kew.

“As part of the settlement at the time, some money was probably found for the scheme, which the PPF would have negotiated. In return for that, the PPF and the Regulator would have allowed the company to come out of the technical insolvency process at that point,” agrees Magoffin.

A spokesperson for the PPF denied knowledge of such a cash payment.

Normally, companies need to have been declared insolvent for their pension schemes to be accepted for PPF assessment. “[Jessops and its advisers] would probably have achieved that by putting the relevant companies into administration – if only briefly,” explains Magoffin.

“I would be astounded if there wasn’t some mitigation paid over in addition to the 33% stake”

When it seems likely that a company will continue to function after a technical insolvency, the PPF has to make a difficult call. It must determine when the right moment is to accept a struggling company’s pension scheme. When will it most benefit from negotiating a deal – at that point or later?

“My guess is that the PPF accepted that the best deal it could get was to sever its ties with the company and settle the claim,” says Magoffin.

The potential for negotiations to drag on while the company became less and less solvent and its pension scheme funding deteriorated may well have influenced the PPF’s decision.

“Obviously you do get deals where the company restructures and can survive, but the Regulator and the PPF closely scrutinise the ability of the company to carry on in the future after this rescue. Is [a deal] really going to fix everything or are they just putting off the ‘evil day’ where the scheme has to go into the PPF anyway?” says Magoffin.

As Jessops goes through the administration process, its administrators, PwC, are trying to salvage as much of the business as possible.

But at a difficult and uncertain time for the company’s employees, members of Jessops’ pension scheme will be thankful that as far as their retirements are concerned, negotiations were concluded in 2011.

“We can reassure members that their PPF compensation is not affected by recent events at the company,” the PPF affirms.