Navistar Canada De-Risks Pension Obligations, Assets

Commercial truck manufacturer Navistar International’s Canadian subsidiary Navistar Canada ULC has purchased group annuity contracts from RBC Life Insurance and iA Financial Group on behalf of its defined benefit pension plans to transfer approximately $268 million in obligations and related assets to the two Canadian insurers.

The company said the move was designed to strengthen its balance sheet by lowering risk volatility in its pension plan obligations.

Under the terms of the agreements, the two Canadian insurers will issue annuities covering the responsibility for pension benefits owed to approximately 1,750 Navistar pension participants and beneficiaries. This represents the majority of Navistar’s pension plan members in Canada. The insurers will begin administering all benefits to these members beginning May 1. The company also said that pension benefits for plan participants will not change.

“These transactions continue our objective to de-risk the balance sheet and manage future pension obligations,” Walter Borst, CFO of Navistar International Corp., said in a release, “while retirees and their beneficiaries will receive equivalent pension benefits from highly rated insurance companies, who have strong expertise in long-term management of retirement benefits.”

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Once the transactions are completed, benefits for plan participants will be protected under Assuris, the not-for-profit organization that protects Canadian policyholders if their life insurance company should fail. Prior to the deal, the plan was under the protection of the Canadian Pension Benefits Guarantee Fund, which provides protection to Ontario members and beneficiaries of privately sponsored single-employer defined benefit pension plans in the event of plan sponsor insolvency.

As a result of the transactions, which were funded by existing plan assets and required no cash contributions to Navistar Canada’s pension plans, Navistar reduced its pension plan benefit obligations by approximately 8%. The company said it expects to recognize a non-cash pension settlement charge of approximately $142 million ($104 million after-tax) in its fiscal Q1 2019 financial results that will be excluded in its non-GAAP results. The company said that going forward, the transactions will reduce Navistar’s non-operating financial risk and administrative costs.

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Tags: Annuity, Navistar, Navistar Canada, Pension, RBC Life Insurance

Despite the volatile tendencies of cryptocurrencies, it may be time for institutional investors to get off the sidelines and explore investments in the nascent industry, according to investment and consulting firm Cambridge Associates.

The firm said that despite the fact prices of various cryptoassets collapsed in 2018, and that its most visible asset Bitcoin saw approximately 75% of its value vanish, it still sees an industry that is strengthening, not weakening.

“Blockchain technology introduces scarcity to the digital world, which can help innovators better monetize their work and foster innovation,” said Cambridge in a recent research report. “It offers the potential to streamline processes across any number of businesses, such as inter-bank settlement. It also holds the hope for a new, more decentralized version of the internet, where users can better manage their privacy.”

The firm said there are several ways for investment managers to gain cryptoasset exposure that range from an illiquid venture capital type of approach to a liquid hedge fund trading approach.

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It said that the current available investment options can be grouped into three broad categories: mainstream cryptoasset investing, pre- and post-token distribution investing, and equity investing.

With mainstream cryptoassets, investors can purchase highly liquid cryptoassets, such as Bitcoin, which provide access to blockchain platforms. Because these are traded regularly, liquidity will be better than other cryptoasset investment options. Investors can purchase and have custody of the tokens directly or through centralized exchanges, or they can outsource to passive or actively managed funds that will do it for them.

Pre- and post-token distribution investing includes initial coin offering (ICO) tokens and something called simple agreements for future tokens, (SAFTs). According to Cambridge, SAFTs grant investors future access to a project’s cryptoassets, usually at a discounted price, prior to their public launch. It also said ICO projects can have various liquidity profiles, as some projects distribute cryptoassets immediately, or after a two-year period, for example.

“Despite the shorter time to liquidity, investing in SAFTs and ICOs is inherently no different than investing in early-stage technology ventures,” said Cambridge. “It should be noted here that the ICO mechanism for fundraising has been abused by bad actors and the majority of such projects have been of questionable quality or outright frauds. That said, there have been numerous reputable projects involving ICOs.”

And by using equity investing to gain exposure to crypto and blockchain technology, investors can make investments in companies whose returns are connected to the growth of the asset class and maintain traditional capital structures. The report cited digital currency exchange operator Coinbase as an example.

“Although these companies are impacted by broader cryptoasset price fluctuations, they should be more stable than any one individual investment,” said Cambridge. “They are long-term, illiquid investments held at cost and marked up or down depending on funding rounds. The liquidity of these investments is similar to traditional venture capital investments.”

The report also cited equity investing in a company that owns rights to the tokens a team is developing, which will be distributed or sold at a later date. It said an operating company holding the tokens could also launch other businesses, such as offering services to the network in which an investor would have an ownership stake.

“Investors are increasingly looking to access tokens via equity ownership, particularly given the regulatory uncertainty with regards to ICOs and the restriction on fundraising options for entrepreneurs,” said Cambridge. “It should also be noted that the SEC is currently reviewing proposals for the launch of a Bitcoin exchange-traded fund (ETF), such as the Van Eck SolidX ETF, but approvals are not expected anytime soon.”

The firm added that the vast majority of institutional investors have little to no cryptoasset exposure, but that it expects traditional venture capital funds to increase their investments in cryptoassets, which means institutional investor exposure is also likely to rise.

Tags: Bitcoin, Cambridge Associates, Cryptocurrency, institutional investors