On the go: The trustee of the Signature Aviation Income and Protection Fund has been left satisfied after the pension scheme escaped any material detriment arising from its sponsor acquisition by Brown Bidco.
Talks about the sale of the multinational aviation services company had been ongoing for some time, with a number of offers tabled. But a combined acquisition by rival bidders Global Infrastructure Partners, Blackstone and Cascade, which have together formed and conducted the deal through Brown Bidco, eventually proved sufficient to acquire the $4.73bn (£3.4bn) company.
According to its most recent annual report, Signature’s net defined benefit liabilities stood at $52.3m at December 31 2020, compared with a restated $11.7m net surplus in 2020, reflecting the transfer of the scheme’s defined contribution section to a master trust.
The company had agreed a deficit payment plan for its DB section of $2.7m in quarterly instalments, which would run until 2030.
As part of the negotiations with Brown Bidco, the scheme’s trustee reached an agreement with the consortium behind the offer over the continuation of scheme funding that, it is said, has spared the scheme any damage that might otherwise have resulted from the acquisition.
That said, the new agreement does not contain the additional support package mentioned in a memorandum of understanding between Signature and the trustee in 2019.
Under the new arrangement, a payment of $12m will be made within a year of the acquisition taking effect. After that, an annual payment of £4m will be made until the scheme is fully bought out or until March 31 2030, whichever comes first.
In return, the trustee is obliged to manage the overfunding risk associated with a move towards a buyout.
The memorandum of understanding stated: “The trustee will put in place a suitable process to monitor the progress of the plan’s buyout funding level, with the intention that bulk annuity contract quotations for insuring the plan’s remaining non-insured liabilities are obtained ahead of the time that the plan is expected to be fully funded on a buyout basis.
“This process will also include advance consideration of what additional monies may be required to convert a buy-in into a full buyout of all of the plan’s liabilities.”
The annual payment will be suspended if either the trustee or the employer has reason to suppose it would increase the plan’s buyout funding level above 100 per cent, and will remain so while buyout and buy-in quotations are sought.
