Valuations and the
impact on covenant for an employer and three schemes

Case studies

The background

We were initially appointed to advise the trustees of three schemes in relation to their 2017 triennial valuations. The sponsoring employers all operated within the European division of a parts supplier to the automotive industry, which was ultimately owned by a listed Japanese parent.

Our solution

During the course of our work, the company announced that it was streamlining the UK business requiring two of the employers to merge. The group was also then taken over by a private equity buyer which required it to de-list from the Tokyo Stock Exchange, and also required the employers to guarantee the acquisition debt.

In addition to providing advice to all three schemes on a suitable level of covenant risk to reflect in the technical provisions for their valuations, and on affordability, we also provided advice regarding the covenant impact of the employer merger and parent company acquisition.

Whilst the former appeared to be covenant neutral, we considered the latter to be materially detrimental due to the diluting effect on the potential insolvency outcome for the schemes. We therefore advised the trustees on suitable levels and forms of mitigation and assisted them in their negotiations with the parent in this regard.

Leading the way 2020: Corporate journey planning

Leading the way 2020: Corporate journey planning

Thought leadership report

This interactive report makes the case for sponsors to drive collaborative journey planning with pension scheme trustees.

Explore our findings

How we can help

We help sponsors of pension schemes understand and manage the costs and risks associated with supporting their current and legacy pension schemes as well as other employee benefits.

We help trustees understand and monitor the employer covenant.

We help pension scheme trustees and sponsors to determine the ultimate destination for their scheme and help them put together a plan to get there, including how to effectively manage the risks they face along the way.

We help trustees achieve their strategic goals, with solution-led, appropriate advice.