Continental transfers €330m more to its CTA
GERMANY - Auto component maker Continental has transferred another €330m in assets to its external pension fund, known as a contractual trust arrangement (CTA).
The move means that Continental's CTA - created in July 2005 with €300m in seed money - now finances €630m of its €875m in pension liabilities.
"We are continuing to improve our financial structures and in doing so are reducing our refinancing costs," said Alan Hippe, chief financial officer of the Hanover-based firm.
Continental is just one of more than 20 companies traded on Germany's blue-chip Dax index to have created a CTA to fund pension liabilities since 2000.
The trend toward CTAs has mainly been driven by the adoption of international accounting standards (IAS), which generally treat pension liabilities covered by book reserves - the traditional German - method as unfunded.
International rating agencies have also rewarded firms with CTAs with higher debt ratings.
Last October it emerged that Continental CTA's had invested its €300m in seed money in exchange-traded funds instead of using external asset managers. The ETFs were supplied by Indexchange, a Munich-based house that was acquired in early November by Barclays Global Investors.
"We decided to invest in ETFs as we are not sure that the alpha (return above market return) which could be generated by using asset managers would be well above the managers' costs," Stefan Scholz, director of corporate finance, told IPE.
But Scholz also said that if the CTA's funding were increased, Continental might consider hiring asset managers.
Contacted by IPE, Scholz was not immediately available for comment on the new CTA situation.
Hanover-based Continental, a maker of tyres and other auto components, had €13.8bn in sales and almost 80,000 employees in 2005.