Johnston Press Pension Plan has agreed a revised recovery plan with its sponsor, entitling it to a chunk of the proceeds from the sale of company assets, to help plug its rising deficit.
Defined benefit deficits for FTSE 350 companies surged back up to £127bn at the end of March, from £116bn the previous month – according to Mercer’s pension risk survey data – a result of the low-yield environment causing liabilities to increase.
The Johnston Press scheme’s deficit was £90m at January 3 this year, up from £78.3m at the close of 2013.
Under its revised recovery plan it is entitled to 25 per cent of the net proceeds from the sale of any of the employer’s assets or businesses until August 31 this year. This applies when a single transaction exceeds £1m or the piecemeal sale of assets totals £2.5m during the course of a financial year.
A spokesperson for the scheme said this measure is “to ensure assets over which [the trustees] had security were not sold without their participation”.
As a result, the media group, whose flagship titles include The Scotsman, paid 25 per cent of net proceeds from the sale of its Republic of Ireland titles to the pension plan in September 2014.
The revised framework was agreed at the same time Johnston Press completed a capital refinancing plan in June last year.
As part of this plan the group received gross proceeds of £365m via a bond issue and a rights issue. These were “interdependent” with the pension framework agreement, the spokesperson said, and relied on trustee consent.
This meant “all three parties had to agree their piece with the company, and if any of the agreements could not be concluded then none would have been”.
The group had already agreed to make a £6.3m contribution to the scheme in 2014, to be followed by a further £6.5m this year and £10m in 2016. Payments will increase 3 per cent annually, culminating in a final instalment of £12.7m in 2024.
In addition, as part of an “unsecured cross-guarantee” the group’s main subsidiaries could be called upon to meet the obligations if the parent fails to do so.
All three parties had to agree their piece with the company, and if any of the agreements could not be concluded then none would have been
Johnston Press spokesperson
Payments to the pension scheme will also be made if the 2014-15 or the 2015-16 Pension Protection Fund levy is less than £3.2m. The contribution will equal the amount the levy falls below that figure, but will not exceed £2.5m.
Alternative financing
Employers are increasingly turning to alternative methods of funding their DB scheme deficits.
For example, infrastructure giant John Laing contributed £100m in cash and equity interests to its DB scheme earlier this year, to help fill its £271.7m deficit.
Lynda Whitney, principal at consultancy Aon Hewitt, said a subsidiary without a sufficiently strong balance sheet in its own right may secure a guarantee from its parent that it will fund the deficit if the subsidiary falls short.
Schemes and employers could also consider what sort of physical assets the company has on its books, she said.
“Do they own their own buildings, do they have a very strong brand, are there other sorts of intangible assets?,” said Whitney.
But Simon Kew, director at covenant specialist Jackal Advisory, said that while having an asset is clearly better than not having one from a trustee perspective, “cash is king”.
He added: “By giving access to an asset, say there is some catastrophic event, suddenly that asset could be worthless.”
