On the go: An agreement has been reached between a private equity manager and the trustees of Morrisons’ defined benefit schemes to grant additional security, as the attempted takeover of the supermarket chain progresses.
Pensions Expert reported in August on the concerns, raised by the trustees of the Morrisons Retirement Saver Plan and the Safeway Pension Scheme, about the prospect of a takeover by two competing private equity managers, Clayton, Dubilier & Rice and Fortress Investment Group, which the trustees said will “materially weaken” the sponsors’ covenant.
In a statement, the trustees warned of the potentially dire consequences for the pension schemes if no agreement was reached to provide them with additional protection.
The trustees cited “the introduction of additional debt secured with a priority claim ahead of the schemes on the majority of the Morrisons group assets, the related increased debt service burden and potential future corporate activity, including the potential for refinancing and restructuring”, as reasons to be concerned.
Though the schemes are currently in surplus on an ongoing funding basis and benefit from security from freehold properties held within a pension funding partnership structure, they cannot afford buyout.
In late August, Clayton, Dubilier & Rice signalled it would be willing to provide the additional securities sought by the trustees, and it was announced on Tuesday that an agreement had indeed been reached.
In a statement, the trustees said the private equity company has agreed in principle to a package of measures that would support the schemes’ journey to buy-out, which they anticipate concluding within 10 years.
The package includes "further properties with an appropriate release mechanism to allow for a gradual release of that additional security as the schemes progress towards 'buy out', together with enhanced governance provisions in respect of the schemes,” the trustees' statement read.
“Having received professional advice, and having regard to the potential impact of the CD&R offer and their respective fiduciary obligations to the beneficiaries of each of the schemes, the trustees consider that the package of mitigation measures, once contractual details are finalised, will provide sufficient and appropriate support for the schemes.”
Commenting on the agreement, Steve Southern, chairman of the trustees, said: "We are pleased with the progress made and CD&R's ability to provide the necessary support and reassurance to the schemes. CD&R has been proactive in its engagement with the trustees, with discussions progressing positively and decisively, delivering a positive outcome for all members of Morrisons' pension schemes."
Sir Terry Leahy, senior adviser to CD&R funds, added: "We are delighted to have reached agreement with the trustees, providing additional security and covenant support to the schemes. We thank the trustees for their constructive engagement, and the positive outcome underscores CD&R's approach as a responsible investor and emphasises the respectful approach CD&R would take to its wider stakeholder responsibilities and commitments."
