Field asks PPF for details on Monarch deal

Written by Natalie Tuck
11/10/17

Work and Pensions Committee chair Frank Field has written to Pension Protection Fund chief executive Alan Rubenstein asking for information on the deal it did with Monarch Airlines in 2014.

The query surrounds the financial settlement for the Monarch Airlines pension scheme. In 2014 Greybull Capital, which bought the airline for £1, granted the PPF a £7.5m secured loan note. Field has queried the priority that will be given to competing interests and creditors in the fallout of Monarch’s plunge into administration on 2 October.

The Works and Pensions Committee said that there has been reports that due to the way the buyout was engineered, the PPF may lose out entirely on its claim while Greybull – a private firm run by Marc and Nathaniel Meyohas and Richard Perlhagen – could even extract a multi-million pound profit from its investment.

Commenting, Field said: “How can it be that once again, mega rich individuals could walk away from a collapsed company with a bumper profit while ordinary people pick up the bill? This massively supports the case for the law to change, to robustly protect pension schemes against owners seeking to line their pockets while avoiding their responsibilities, in line with our recommendations. Do we need another illustration of the ethics of some of the billionaire class in this country before we act?”

Greybull bought the ailing airline, minus the company pension scheme, for £1 from its billionaire founders the Mantegazza family October 2014. Before the takeover the pension scheme had reportedly been carrying a deficit of £158m.

To enable the takeover, the pension scheme was separated from the company as part of a Regulated Apportionment Arrangement (RAA) negotiated and approved by The Pensions Regulator (TPR) and the PPF in September 2014. TPR agreed to the deal as it was satisfied that Monarch would otherwise have inevitably gone insolvent within 12 months.

According to the terms of the RAA the former owners made a £30m mitigation payment into the scheme and demonstrated to TPR’s satisfaction that all other creditors to the firm had made “significant compromises” on their claims. Greybull gave the PPF a 10 per cent equity stake in the new restructured business and a £7.5m secured loan note, potentially enabling the PPF to gain from any recovery in the firm’s fortunes.

The scheme entered PPF assessment in October 2014 and was fully transferred into the fund in November 2016. Members of the Monarch scheme now receive PPF levels of pension benefit, including a 10 per cent cut to accrued benefits for deferred members and a further compensation cap limiting payments to those with the highest accruals, e.g. the longest serving pilots.

In response, PPF director of restructuring and insolvency Malcolm Weir said: “In November 2014 the PPF faced an inevitable claim of £200m in respect of the Monarch pension scheme. Without the protection of the PPF that shortfall in the pension scheme would have meant very significant losses to members. Following the transfer of the scheme to the PPF in November 2016, members are receiving much more than the pension scheme could have afforded to pay.

“The expected recovery for the pension scheme if Monarch had gone bust in November 2014 was £0. The £30m in cash secured for the scheme by the restructuring of Monarch was much more than the scheme would have otherwise received. The restructuring met the PPF’s published tests.

“In addition to the cash, the scheme also took debt in the business and a 10% equity stake. These were taken on the basis that if the business were to become successful again there would be a further return. Recent events have shown that, while we hope to receive some further recovery in respect of our debt, sadly Monarch did not return to being a successful business. Despite this, we believe that the protections we negotiated in November 2014 to ensure our debt and equity could not be superseded or watered down have operated as intended.

“By agreeing to the restructuring in November 2014 the PPF is better off than if the company had simply been left to fail at that time.

“We’re in the process of responding to Mr Field’s recent letter”.

Related Articles

Cautious optimism in a challenging world
Matthew J. Bullock, Investment Director, Global Multi-Asset Strategies, Wellington Management, meets Francesca Fabrizi to discuss how multi-asset strategies can help investors

Latest News Headlines
Adam Cadle provides a summary of the big pensions stories to have hit the headlines this week
Most read stories...
World Markets (15 minute+ time delay)
FTSE
7,490.57
+42.45
S&P 500
2,675.81
+23.80
Nikkei 225
22,553.22
-141.23