UK regional newspaper publisher Johnston Press could carve off its defined benefit (DB) pension plan from its main business as part of a debt restructuring deal, according to the company.
In response to press reports yesterday, Johnston Press confirmed in a stock exchange announcement that it was in discussions with its pension scheme trustees and the Pensions Regulator (TPR) regarding a regulated apportionment arrangement (RAA).
If agreed by the regulator, it would mean the scheme could transfer into the Pension Protection Fund (PPF) if it is not sufficiently funded.
According to the Daily Telegraph, the firm has entered into talks about ceding control of the business to GoldenTree Asset Management, a US hedge fund. GoldenTree, according to the Telegraph, is the primary owner of a £220m loan due for repayment on 1 June 2019.
In a statement issued late yesterday, Johnston Press said: “The company confirms that an RAA is one of a number of potential strategic options for restructuring or refinancing of the bond being considered by the company and its advisers and in respect of which the company expects to discuss with relevant parties in due course.”
GoldenTree declined to comment when approached by IPE yesterday.
According to Johnston Press’ annual report for 2017, its £561.4m (€640.8m) DB scheme had a funding shortfall of £47.2m at the end of December.
Johnston Press stated in the report: “The current size of the business cannot support this level of debt and pension commitments over the longer term.”
TPR said it was aware of the situation regarding Johnston Press. “[We] are in contact with the company and trustees to understand any impact on the pension scheme,” a spokesperson said. “We will not comment further unless it becomes appropriate to do so.”
A spokesperson for the PPF said: “We can’t comment on the circumstances of this company. In the event of an insolvency event at a company with an eligible pension scheme, members can be reassured that we are there to protect them.”
Last year, Tata Steel UK struck an RAA deal with the British Steel Pension Scheme, but such deals are relatively rare in the UK, said Faith Dickson, a partner at law firm Sackers.
Sackers advised on an RAA in 2016 involving the pension scheme of Halcrow Group when it was part of CH2M Hill, a global engineering company.
“TPR and PPF are very keen to limit the number of them that they will agree in any year,” Dickson said. From a scheme member’s perspective there was no upside to the agreement, as they were in place for the company’s benefit, she added.
“Under the statutory agreement, the trustees [of the scheme] have to be of the view that the employer will become insolvent within 12 months – or that it is inevitable in the short term,” Dickson said.
As part of an RAA, a company’s pension scheme is separated from the business and then falls under the auspices of the PPF, which caps benefit payments for members yet to retire. An RAA is usually struck when a company falls into difficulty, but there remain valid reasons for not seeking insolvency.
For a company to be able to strike such a deal, it must first come to an agreement with both the PPF and TPR.