Pension Defecit thing18 Dec 2011 23:47
This is mostly from reading the RI prospectus (page 131) and FY2010 accounts (Note 27). *
The six defined benefit schemes "closed to future benefits on 30/09/06". However, Pendragon is obliged to fill any deficits which materialise, on these residual schemes. *
The residual schemes had circa £340 million of assets and circa £390 million of liabilities at 31/12/10 (ie defecit £50m). In addition, a £21.3 million "non recognition of surplus", funding obligation exists, as a liability to Pendragon (ie total pension defecit 31/12/10 was circa £70m). *
The £50 million defecit was filled (by Jul/Aug), partly by cash contributions, but mainly by giving the pension fund, ownership rights (20 year leases) to some of Pendragon's property (show rooms etc?). I think that prior to the Rights Issue and revised banking facilities, the old banking facilities were secured partly on this property. *
Pendragon now rents this property from the pension fund, at a cost of £2.5 million a year. The rents will increase by 2.25% each year for 20 years, when the ownership rights given, will expire. *
I reckon the interest cost saving, resulting from £50 million of the rights issue proceeds, actually being used to pay down debt is £2.5 million a year (relevant interest rate 5% IMO). *
*** Conclusion / Comment ***
The Rights Issue and Pension Transaction, in combination, did nothing significant, to improve Pendragon's financial position, (other than fill a £50 million hole and take a £20-£25 million shafting, a year or two earlier than necessary!) *
A liability of £21.3 million relating to the pension defecit thing still exists on Pendragon's balance sheet IMO. *
I think Pendragon's future share price depends on trading performance / cost savings issues, and on wether or not a further pension defecit materialises at the next actuarial review (5th April ?).
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