A complex covenant structure

One of our clients has been facing some challenging covenant issues and so our actuarial and investment consulting teams have worked closely together to provide proactive advice to help the trustees take steps to strategically manage these risks.

The £80m scheme has two participating employers.  These employers have very few assets and a complex legal structure, but are backed by stakeholders with more substantial assets, making the covenant difficult to assess.  We helped the trustee of the scheme following a proposal by the employers to restructure its businesses, which had the potential to have a negative impact on the employer covenant.


The trustee (on our advice) brought forward the triennial valuation in order to limit the effect of any adverse employer events.  As part of this valuation we helped the trustee negotiate a plan to clear the scheme’s funding deficit by the next valuation, as well as agreeing two further objectives to reach “self-sufficiency” within six years and being in a position to buy-out within ten years.

"We worked side by side with the trustee through the negotiation process, helping the communications go as smoothly as possible."

We worked side by side with the trustee through the negotiation process, helping the communications go as smoothly and cooperatively as possible and attended negotiation meetings with the employer representatives to support the trustee with its discussions.  We also prepared and delivered a training session for the key decision makers from the employers to help ensure that any proposals would be interpreted correctly and the key stakeholders were aware of the context in which the proposals were being made.  As part of going through this process, the employers and their stakeholders now better understand what the trustee is trying to achieve and decisions are now focused towards meeting the “end game”. 

In order to support the funding strategy moving towards self-sufficiency and eventually buy-out, we also helped the trustee to implement an Liability Driven Investment (LDI) strategy including investment de-risking funding-based triggers designed to reach the self-sufficiency target. 

We also explored contingency plans with the trustee and employer, and ultimately obtained guarantees from the stakeholders to cover the contributions required to meet the trustee’s objectives.


The framework we have put in place has worked well and the scheme is now actually ahead of target to meet its tertiary buy-out objective.  In fact, we are now helping our client to explore the possibility of securing a buy-out in the short term.