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Rothesay Life completes first deal with Rank buyout (amended)

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  • Rothesay Life completes first deal with Rank buyout (amended)

UK - Rank Group has agreed to transfer its £700m (€913m) defined benefit scheme to Rothesay Life, a subsidiary of Goldman Sachs, in the largest pension buyout deal to date.

The deal is Rothesay Life's official entry into the buyout market and will see the company take responsibility for almost 20,000 members of the scheme - which closed to new entrants in 2000 - and a fund with a surplus of approximately £75m.

The gaming group, which owns Mecca Bingo and Grosvenor Casinos, confirmed the deal would remove all remaining financial risks and liabilities of the scheme so the scheduled employer contributions of £30.8m, agreed with trustees in 2006, will no longer be required.

Instead, it confirmed once the deal is completed, Rank Group would receive a cash payment of at least £20m, which represents its allocation of the surplus shared with members, after any transfer related costs, including tax, are paid.

After HM Revenue & Customs (HMRC) has cleared the tax treatment of the transfer, which is expected to be May 2008, Rank Group said the cash payment would be used to reduce the group's borrowings.

In addition, the group's final results for 2007 confirmed although employer contributions stopped in February 2008, employee benefits have been "augmented" until June 2008, while employees affected by the changes have been offered a replacement stakeholder scheme or a salary supplement.

Peter Gill, finance director of Rank, said the transfer is the result of an "extensive review" of several options, and claimed the chosen outcome represents the best outcome for all concerned while being "in step with the change we have made to reposition the group in recent years".

"With the financial benefits that this transfer provides, Rank will be better placed to address its near-term challenges and to grasp its long-term opportunities," he added.

Mike Samuel, chairman of the trustees, said the Rothesay Life proposal had met all the trustees' objectives, and as a result they believed the business model, backed by Goldman Sachs' strength and financial expertise, would provide "a high level of security for scheme benefits and an excellent administrative service".

Mercer, which arranged the competitive process and acted as actuarial and investment adviser to the trustees, said the Rank deal, and the EMAP buyout at the end of 2007, demonstrates what companies can do to offload pension risks completely and predicted an increase in similar transactions in the future.

David Ellis, trustee consultant and principal at Mercer, said: "There is increasing buoyancy in this market, prompted by companies wanting to reduce the burden of uncertain cost increases from changing legislation, stock market volatility and increased life expectancy."

HSBC Actuaries and Consultants, who advised Rank Group on the transaction and acted as an intermediary between all three parties, said the solution would "undoubtedly prove attractive to many other employers struggling to manage the risk posed by their final salary scheme".

Simon Taylor, head of the HSBC Actuaries' team in London, said the approach to buy-outs demonstrated by Rothesay Life and Rank Group is "ground breaking", and revealed HSBC Actuaries is "already talking to a number of other organisations anxious to benefit from our innovative approach to these issues."

The transfer is scheduled for completion by June 1 2008 - approximately nine months after Rank Group first signalled its intention to offload its scheme in September 2007, over concerns about the size of the scheme in relation to the market capitalisation of the firm. (See earlier IPE story: Bingo group confirms pension fund sale plans)

IPE discovered last July Goldman was planning to enter the buyout market through its new venture Rothesay Life. (See earlier IPE story: Goldman taps into buyout boom)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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