Allen & Overy (A&O) has played a key role in a landmark pensions deal, advising Thomson Regional Newspapers’ pension fund on its acquisition by Citigroup.
This is the first time a bank has taken control of an external pension fund, with insurance company buyouts the generally more accepted route.
A&O pensions partner Mervyn Parry, who led the team acting on the deal, said that buyouts can prove an expensive route for pension funds because they involve purchasing annuities and other products from insurance companies.
Under the Citigroup deal, a special purpose vehicle owned by a subsidiary of the bank has become the principal employer of the pension fund, committing to provide it with financial support.
“Thomson as a group sold the Thomson Regional Newspapers business more than 10 years ago, so it was a fund with pensioners and defined pensioners but no active members,” Parry explained. “Usually a company employs people who become members of the fund and the employer retains responsibility to fund the pension scheme.
“In this case, it had been 10 years since the employer had employed anyone that was a member so the scheme has been run by the trustees. They were concerned as time elapsed to ensure that it had financial security.”
Although the pension fund was sufficiently funded to meet its liabilities at the time of the sale, there would have been a deficit had it wound up. Thomson had not put money into the vehicle for some time.
Under the Citigroup agreement, the bank will set aside funds to meet any future deficit when the fund eventually winds up.
Citigroup, which is thought to be in talks regarding a number of similar transactions, was advised on the deal by Linklaters counsel Graeme Tricker.