Johnston Press considering RAA for pension scheme

Written by Natalie Tuck

Newspaper publisher, Johnston Press, is considering a regulated apportionment arrangement (RAA) for its pension scheme, it has revealed.

In a statement published yesterday, 5 June 2018, the company confirmed that an RAA is one of a number of “potential strategic options” for restructuring or refinancing of a £220m bond which is due for payment on 1 June 2019. Johnston Press said it will discuss this with relevant parties in due course. If an RAA is to go ahead, it will see Johnston Press’ pension scheme liabilities passed over to the Pension Protection Fund, however, it would first need to prove that insolvency is inevitable, and that whatever happens it cannot provide benefits above PPF payments.

In April this year, the publisher revealed its defined benefit pension deficit dropped to £47.2m over 2017. The deficit had fallen by £20.5m, from £67.7m to £47.2m over the 12 months to 31 December 2017. It said the decrease in the deficit was largely a result of £10.3m of contributions paid during the period, positive returns on pension assets and the benefit of applying updated demographic assumptions based on the CMI 2016 model (as compared to the estimate made at 31 December 2016).

Its current strategic review is due to acquisitions in 2005 and 2006, which saw peak debt levels hit £751m, at the end of 2006. It has said that the current size of the business cannot support the level of debt and pension commitments over the longer term. As a result, on 29 March 2017, it began working with Rothschild and Ashurst LLP, to assess the financing options available to the group in relation to the bonds which become due for repayment on 1 June 2019.

As a key part of the strategic review process, the board has engaged with its major stakeholders, including shareholders, holders of the bonds, pension trustees and The Pensions Regulator (TPR). The Pension Framework Agreement and the required level of contributions have been reviewed as part of the review of strategic options relating to the refinancing of the bonds on 1 June 2019.

The Pension Framework Agreement set out that following the implementation of the capital refinancing plan in June 2014, the secured guarantee provided in favour of the plan trustees by the group in relation to any default on a payment obligation under the Johnston Press Pension Plan was removed. In return, the company has provided an unsecured cross-guarantee in favour of the trustees in relation to any default on a payment obligation under the plan. However, each claim made under the unsecured cross-guarantee is capped at an amount equal to the aggregate section 75 debt of the scheme, at the date made by the trustees is due.

Furthermore, the 2012 triennial valuation deficit will be sought to be addressed by 31 December 2024, and it has agreed to the settlement of previously incurred PPF levies and section 75 debts. The scheme was entitled to receive 25 per cent of net proceeds from business or asset disposals up to and including 31 August 2015 exceeding £1m in a single transaction or £2.5m over the course of a financial year.

“The group would also pay additional contributions to the plan in the event that the 2014/2015 PPF levy and/or the 2015/2016 PPF levy was less than £3.2m, equal to the amount the levy falls below £3.2m, up to a maximum of £2.5m. Additional contributions would also be payable to the Johnston Press Pension Plan in the event that the group satisfies certain conditions in relation to financial leverage,” it said.

However, the Pension Framework Agreement and the required level of contributions are subject to review as part of the triennial valuation as at 31 December 2015. Discussions are currently ongoing between the trustees and the company. The statutory deadline for sign off of the valuation was 31 March 2017 and the trustees have informed TPR that the valuation has not been signed off due to ongoing discussions with the company. The trustees and the plan's advisers have met with TPR and had regular conference call updates over the course of the year to keep TPR updated on the progress of the discussions.

Until then, the recovery plan agreed in 2014 remains in force, which sees the company pay £10.6m a year until 31 December 2018, increasing by 3 per cent per annum with a final payment of £12.7m in the year to 31 December 2024.

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