Expert disputes interpretation of ruling in Lehman/Nortel case
UK - Ros Altmann, director general of Saga, an organisation representing the over 50s in the UK, has disputed lawyers' interpretation of a landmark ruling last week.
Justice Briggs last week ruled in a case involving Lehman Brothers' European division and Nortel Networks that the UK pensions regulator could enforce financial support directions (FSDs) on insolvent companies that do not directly employ members of underfunded pension schemes and that the debt should rank above claims by other creditors, such as lenders.
Lawyers specialising in restructuring have said the ruling means banks will be loath to lend to companies with final salary pension schemes, for fear that the priority ranking of pension scheme debt could wipe out any return for any other creditor if a scheme sponsor, or any related company, becomes insolvent.
But Altmann said observers might not realise that Nortel offered a guarantee to its trustees to help fund its deficit and that Lehman Brother also pledged a certain amount of money to its European division pension scheme in June 2008.
"Lawyers may be overly concerned that the full buyout cost can be recovered by the FSD, when the regulator may only be able to recover the guaranteed amount," she said. "Nortel's full buyout deficit is £2bn (€2.4bn), but the amount guaranteed is only around £100m.
"The balance of the debt, over and above the guarantee, would have equal ranking with other creditors. This means that when companies are re-structuring, banks need to check the terms of any guarantees that have been made by the sponsor to the trustees, but normally there aren't any guarantees."
Altmann said it was logical the guarantee had priority above unsecured creditors, but that the balance of the FSD ranked alongside other creditors.
"The suggestion the full buyout cost ranks above other creditors is not necessarily correct," she said. "This is new legislation that has not been tested, but the regulator has a duty to act reasonably, and the amount it can recover must be reasonable."