Banks forbid firms aquiring subsidiaries with DB schemes

In an agreement seen by PW, Clydesdale Bank required one UK company earlier this year to ensure no employer in its group was attached to a non-money purchase scheme, in order to refinance its long-term loans.

It also required the firm to notify the bank of correspondence received from any third party, including the Pensions Regulator and the Pension Protection Fund, that suggested it was connected to such a scheme.

HSBC and Lloyds TSB also admitted sometimes using similar clauses against companies adding DB schemes.

“It is potentially quite a worrying sign of things to come,” said a person familiar with the Clydesdale agreement. “It could have made the difference between being able to extend [the loans] or not being able to extend them.”

Legal experts said this clause was increasingly common as last year’s Nortel-Lehman judgment had made banks fearful of being relegated behind pension schemes in an insolvency.

The Loan Market Association (LMA), a trade body that publishes a framework for banks to use when drawing up these deals, includes a near-identical clause in its latest document, dated January 20.

Christopher Clayton, partner at Begbies Traynor, said this kind of clause was not yet universally adopted, but added banks were reconsidering lending to companies with DB schemes in the light of the Nortel-Lehman judgment.

He added: “Given the potentially large deficits in some DB schemes I am not surprised banks will want to insert better protection into their loan documentation.”

A spokesperson for Clydesdale Bank admitted use of the clauses, adding: “As a responsible lender it is appropriate we establish a borrower’s ability to repay a loan. Each loan contract is tailored to the company and the loan, but is based on the LMA’s recommendations.”