GLOBAL - Mercer has claimed banks and other lenders should "give greater consideration" to the demands of defined benefit pension scheme trustees when firms are looking to negotiate restructuring or refinancing terms.
The consulting firm has issued such advice as its own interpretation of messages from funding workshops hosted by the Pensions Regulator suggested trustees should get involved in negotiations because there could be implications for pensions funding.
Moreover, its reading of TPR discussions suggested trustees must ensure that "where appropriate, contingent security for the scheme is carved out of the restructuring", according to Darren Masters, leader of Mercer's covenant consulting team.
"The pension scheme is a major stakeholder in the wider financial position of the sponsoring company," said Masters. "As significant players, scheme trustees should be automatically invited to the negotiating table by banks, bondholders and company directors when refinancing and restructuring are being considered. These negotiations might impact upon the employer covenant and the employer's obligations to the pension scheme should be factored in to avoid complications and disputes down the line."
Not only should trustees expect to be involved by their sponsor employers should expect them to "play hardball" in any negotiations with financiers, continued Masters.
He noted that trustees do have a wide range of powers to use as leverage in scheme funding negotiations and can, for, example, order the scheme be wound up or trigger a multi-million/multi-billion pound debt that could send the employer into insolvency.
Eleanor Dowling, a principal at Mercer, said in certain circumstances trustees may feel they have no choice but to exercise those powers to protect members' interests, even if it could damage a bank's profitability.
"In some scenarios, the trustees could rank equally with the bank with regard to certain assets, or they could demand a second charge if this will provide security of adequate value," said Dowling.
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