On the go: Trustees of defined benefit schemes belonging to troubled motoring group the AA have agreed funding principles with the company’s new private equity backers, including a commitment not to increase technical provisions where possible.
Six years after being floated on the London Stock Exchange by previous private equity owners, and having seen a debt-driven slump in its share price, the AA agreed a £219m takeover deal on Thursday with Warburg Pincus and TowerBrook.
A public statement on the deal reported that the new owners have engaged in discussions with trustees of the company’s two DB schemes in the UK and Ireland, and reached an agreement on the next five years of funding, subject to trustee due diligence.
The AA has a total of £2.8bn in DB liabilities, which while partially funded by scheme assets, still heavily outweigh the group’s new market capitalisation.
Among the agreements between the trustees, TowerBrook and Warburg Pincus was a commitment not to bring forward the actuarial valuations unless a material adverse event occurs, to use agreed actuarial assumptions for that valuation unless circumstances are substantially different, and not to let any changes increase the company’s technical provisions unless this is unavoidable.
Where technical provisions are required to increase by law, the trustee must work with the company to set the new assumptions.
In return, the private equity giants have “confirmed” that there are no plans to remove the current trustee board or its chair, information-sharing agreements are in place, and “certain assurances are given to the trustee concerning the AA Group’s indebtedness and future payment dividends and monitoring fees”.
Perhaps most importantly for the schemes, the two US companies have promised to repair the AA’s balance sheet, a key drag on the quality of the schemes’ sponsor covenant. A total of £378m will be injected into the company to refinance existing debts.
“The additional equity that Bidco [the two equity funds] intends to invest in the AA also provides additional benefits, including enhanced long-term security to the AA and its other stakeholders, including customers, business partners, employees, regulators, other investors and members of its pension scheme, thus enabling this leading British company to secure its future and continue to prosper,” the announcement read.
