(Alliance News) - Wm Morrison Supermarkets PLC's pension trustees on Tuesday said they will seek assurances from the private equity firm that is set to buy the grocer as it warned the deal could weaken sponsor covenants.
Trustees of the supermarket chain's pension scheme said it aims to agree additional security from Clayton, Dubilier & Rice in the form of covenant support.
The trustees warned that the current terms of the deal, based on the information they have available to them, would "materially weaken the existing sponsor covenants" supporting the pension schemes.
"These factors include the introduction of additional debt secured with a priority claim ahead of the schemes on the majority of the Morrisons group assets, the related increased debt service burden and potential future corporate activity, including the potential for refinancing and restructuring," the pension bosses added.
The pension scheme has about GBP5.5 billion in assets as of May 31, the trustees added. The retirement plan includes the Safeway Pension Scheme, which has about 31,900 members as of April 1, 2019, the Morrisons Retirement Saver Plan, with 9,700 members and the RSP Section of Morrisons Retirement Saver Plan which has about 43,900 members.
The trustees said a "helpful introductory" meeting with CD&R took place last week.
"The trustees look forward to productive discussions leading to agreeing an appropriate mitigation package with CD&R as soon as possible," the trustees added.
CD&R, noting the Tuesday statement, said it believes it had a "positive discussion" with the trustees, and dialogue is progressing.
"CD&R intends to continue this dialogue to ensure that the trustees understand and support the sponsor covenant following the completion of the CD&R offer. CD&R understands and accepts that the trustees consider this dialogue is likely to extend to considering arrangements which provide additional security to the schemes through an appropriate mitigation package," it said.
CD&R confirmed that the existing pension rights of all Morrisons' management team and employees will be "fully safeguarded" after the grocer's takeover.
Calling the trustees an "important stakeholder" in Morrisons, CD&R said it looks forward to "further positive engagement".
Morrisons accepted a new GBP7 billion bid from private equity firm CD&R late Thursday last week.
As a result, it withdrew its recommendation for investors to accept a previous GBP6.7 billion takeover deal from a consortium led by Softbank-backed private equity firm Fortress.
Morrisons shares closed 0.4% lower at 290.90 pence each in London on Tuesday, valuing the company at GBP7.04 billion.
By Eric Cunha; ericcunha@alliancenews.com; updated by Lucy Heming;Â lucyheming@alliancenews.com
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