covenant assessment

Case studies

The background

Our clients were Trustees for whom we have been the retained covenant adviser for a number of years. Over this time, we developed a comprehensive covenant monitoring program which assisted the Trustees in understanding how the strength of the employer changes over time, in line with changes to the Scheme’s funding position and investment performance.

Our solution

We recently provided a more comprehensive covenant assessment for the purpose of the Scheme’ 2017 triennial valuation, which included consideration of employer forecasts and of the longer-term intentions of its owner, a private equity firm.

Through this work we uncovered that the employer was to begin paying significant dividends following a period where none had been paid since the private equity firm bought the business several years earlier.

We considered recent regulatory guidance regarding both materially detrimental events and the requirement for schemes to be treated equitably with other stakeholders.

The results

As the scheme ranked behind secured debt, and would have expected a relatively small insolvency realisation in any case, there were strong arguments to say that the dividends would not be detrimental to the ”exit” covenant. However, we assisted the Trustees in negotiating a shorter recovery plan than would otherwise have been the case, on the basis that this was required to ensure fairness compared to what the shareholder was taking out of the business.

How we can help

We help trustees understand and monitor the employer covenant.

Our team works with trustees and sponsors of pension schemes to help them maximise their investment returns, while ensuring risk is well managed.

We help clients identify, manage and monitor pensions risks in an integrated way.

We help companies manage and mitigate their pensions risks and costs.

Get in touch.

If you would like to know more about our services and how we can help you with pensions and benefits.

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