UK - Sea Containers Limited has withdrawn its appeal against two Financial Support Directives issued by The Pensions Regulator, after finalising a deal with pension trustees.
The Bermuda-registered company started the appeals process last July, following TPR's decision to issue two FSDs - requiring the firm to "financially support" the 1983 and 1990 pension schemes of it's London subsidiary, Sea Container Services Limited. (See earlier IPE.com story: FSD recipient appeals TPR findings)
A final hearing for the appeal was scheduled for March 5-13 2008, however Sea Containers and TPR have both confirmed the appeal was withdrawn on January 31, and on February 5 TPR completed the FSD process, which compels the firm to "provide a form of financial support to the two schemes within 30 days". (See earlier IPE.com story: FSD recipient appeals TPR findings)
However, Sea Containers claims it only withdrew its appeal because a deal with trustees was pending, following continued discussions, and to continue with the appeal would be expensive and the costs would be likely to reduce any contributions to the pension schemes.
Sea Containers revealed the deal, which was agreed in principle on February 6, means the firm will treat the pension trustees as unsecured creditors and will recognise their claim on the company during the Chapter 11 bankruptcy proceedings that are ongoing in the US.
The major creditors of the company are the holders of four outstanding bond issues, believed to be a number of US hedge funds, and the two major pension schemes which have in total almost 1500 members and an estimated deficit of $200m (€137m) on a section 75 buyout basis.
Although details of the deal have not been revealed, Sea Containers confirmed the agreement would create an additional reserve of $69m to cover potential pension scheme liabilities regarding "age-related equalisation changes".
The agreement, which specifies the amount the schemes can claim against the firm's estate, has been described by Sea Containers as a "critical and positive milestone" that will "allow the company and the trustees to avoid costly and protracted litigation".
In addition, the firm suggested the deal had been reached without the FSD's being "forced on them" and said it only withdrew its appeal because it considers the settlement will "adequately address any FSD and that the current legal proceedings would be of no further benefit".
Sea Containers admitted the proposed settlement is subject to approval by TPR and the Delaware Bankruptcy Court, and while it is confident the regulator will grant approval, it warned other creditors might object to the terms of the deal.
Sacker & Partners LLP, the law firm advising the trustees of the larger 1983 pension scheme said the withdrawal of the appeal and the issue of the FSD's was "excellent" news for members.
Nick Couldrey, partner at Sacker & Partners, said: "We expect a substantial contribution to the deficiency in the schemes which means better benefits for members. It also means that the likelihood of needing to make a call on the Pension Protection Fund will be reduced."
"There is still a long way to go, with many issues in the UK, Bermuda and the US that require attention; but overall this is a real success story for the pension scheme trustees and the protection of their members' interests," he added.
But Richard Jones, principal at Punter Southall, said it was disappointing the first ever FSD should be issued by default rather than by TPR winning the arguments of the case.
He also expressed concern the original appeal was simply "a delaying tactic surrounding the complexities of the Chapter 11 process" and suggested the real reason Sea Containers withdrew the appeal was that bankruptcy proceedings had advanced far enough so that an FSD would "be a minor irritant to its goal of achieving value from the bankruptcy process for its shareholders".
"We will therefore have to wait and see whether the FSD has any significant impact on the security of the members' benefits," added Jones.
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