UK - The Pension Protection Fund (PPF) is poised to start assessing the situation of the £120m (€173.8m) pension scheme of steel products supplier Sheffield Forgemasters Engineering (SFE), a company in administration.
The SFE’s pension fund, which is believed to have a £60m deficit, has applied to the PPF for consideration yesterday night, triggering the assessment period in which the PPF considers whether to take responsibilities for the applicant.
The PPF is expected to validate the application within the next 28 days before starting the assessment period, but PPF’s spokesman Paul Reynolds said a decision could be taken “quite quickly”.
SFE has been supported by administrators of its parent company Sheffield Forgemasters Ltd, which was placed in administration in 2003. But the administrators have decided that they can no longer support the company, although SFEL 2005 recorded operating profits of £2.5m in the 12 months to 30 June.
Meanwhile, the board of SFEL has made a staff buy-out proposal, led by managing director Graham Honeyman. The company said in a statement that the buy-out would save 600 jobs.
“There were only two options available, either liquidation or a Company Voluntary Arrangement (CVA), under both these scenarios the pension liabilities would come to the PPF,” Reynolds told IPE.
Under the CVA, the pension scheme would be given “a small stake”, an arrangement similar to the scheme of insurer Heath Lambert, which also turned to the PPF.
The PPF became involved as a contingent creditor when approached by the pension scheme’s trustees as the administrators started considering liquidation or CVA. Negotiations took “quite a while”, Reynolds said.
“The CVA offers the best deal for the pension scheme, and we have been able to negotiate 25% more cash than it would have been available to the scheme under liquidation,“ Reynolds added.
Whenever it is involved in a CVA negotiation, the PPF has a “clear preference” for cash paid immediately, Reynolds said. The PPF is prepared to consider 12 asset classes options, starting from immediate cash payments or cash instalments, down to equity and equity options/warrants.
In the present deal with the Sheffield-based company, which is the biggest private sector employers in the city, the PPF has settled for cash and equity, which will work as “insurance” for future recoveries.
Reynolds declined to disclose the value of the settlement but said the PPF has given a test approval to the deal, because of the extra 25% cash.