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Case study

Transactional covenant support for trustees

Pensions & benefits Employer covenant consulting

The background

Our client is the trustee of a scheme which faced a number of key challenges prior to our appointment, including the deterioration of the sponsoring employer’s trading performance, corporate transactions (various disposals / acquisitions) and dealing with correspondence from TPR regarding the strength of the employer covenant.​

The trustee was also aware that the management team was considering further business disposals and was keen to agree in advance the portion of the proceeds that would be allocated to the scheme in that scenario. This was particularly relevant given the level of covenant leakage that had occurred in the past.

Our solution

We assessed the available information and concluded that the covenant had materially deteriorated over the intervening period. In addition, the Scheme was not being treated equitably with other stakeholders, particularly in relation to how the disposal proceeds from recent business disposals had been utilised. ​​

We provided key support to the trustee by successfully negotiating a mechanism that would secure a pre-agreed percentage of future disposal proceeds for the scheme.

The results

This arrangement turned out hugely beneficial for the scheme. Two years later, a significant disposal occurred, and the mechanism we had advised upon ensured that the scheme received an equitable portion of the sale proceeds.

Consequently, the scheme is now nearly fully funded, demonstrating the tangible benefits of our strategic planning and the successful negotiation we facilitated on behalf of the trustees.​