(July 9, 2013) — The long-running saga of the EMI Group Pension Fund is now at an end, after Citi and Pension Insurance Corporation (PIC) helped the sponsor reach a £1.5 billion buyout.
The transaction has insured all liabilities of the fund with PIC, providing certainty to the 20,000 members.
Clive Gilchrist of BESTrustees, and chairman of the trustee company, has been working to find a resolution after he was appointed by the UK’s pension regulator in 2009.
He said: “As a trustee, fully securing benefits is the ultimate goal. An enormous amount of time and effort has been put into this by all concerned. The outcome demonstrates how worthwhile it has been.”
EMI’s battle to secure its members’ benefits has been one of the longest in recent history. At several points over the past few years the pension deficit, and how to deal with it, has been disputed by EMI owners Terra Firma and the trustees of the scheme.
Gilchrist told aiCIO‘s Charlie Thomas back in August 2010 that while the employer would argue for the most central assumption for the liabilities level, the trustees-which by law are required to be more cautious-refused to link the liabilities to anything other than gilts, “because if it all goes wrong and we are forced to seek a buyout, gilts are what insurance companies use to measure liabilities”.
But by October 2010, Gilchrist had spearheaded a push to agree a six-year funding agreement with EMI, resulting in a payment of £197 million over six years, plus a £16 million upfront payment.
Talking about the buyout agreement, Swapnil Katkar of Citi’s pension solutions team, said: “We ran a disciplined process that allowed the trustee and sponsor to achieve their objectives of acquiring all risk cover on competitive terms from a leading provider.
“Working closely with the trustee board, sponsor representatives, insurers, legal counsel and actuarial advisors allowed us to conclude the policy acquisition within five months, ahead of plan, despite the low interest rate environment and volatile market conditions.”
And David Collinson, co-head of business origination at Pension Insurance Corporation, added: “We are proud to have completed this transaction, the largest ever pension insurance buyout. We worked closely with all parties to help them move rapidly through the process and to give them price certainty through an “All Risks” structure.”
The buyout is the largest to date in the UK, but it is still dwarved by the two biggest buyouts in the US: Prudential took over some $33.5 billion in pension liabilities last year in two transactions alone, with General Motors and Verizon.
Pension Insurance Corporation had previously held the joint title of the UK’s largest buyout, with its £1.1 billion deal with Thorn in 2008 (Legal & General also landed a £1.1bn deal for former staff of defunct asbestos manufacturer Turner & Newall in 2011).
Thorn and EMI were previously one company-Thorn EMI. The major British consumer electronics, music, and retail firm was created in October 1979 when Thorn Electrical Industries merged with music label EMI.
The companies demerged in 1996, with EMI becoming EMI Group and Thorn being acquired by Future Rentals, a subsidiary of Nomura Group in 1998. Thorn was subsequently passed to Terra Firma Capital Partners, who set up the Brighthouse chain, before selling the remainder of the company to a private buyer in June 2007.
EMI meanwhile was taken over by Terra Firma in 2007 at a difficult time for the music label: record sales were declining and some of its major acts, such as the Rolling Stones, were departing.
Terra Firma’s CEO Guy Hands attempted a turnaround program, but it eventually failed, resulting in Citigroup taking 100% ownership of EMI Group in February 2011, writing off £2.2 billion of debt and reducing EMI’s debt load by 65%.
The group was put up for sale and final bids were due by 5 October 2011. After a few legal wrangles, Universal Music Group and Sony completed their acquisition of EMI, with Citi retaining the ownership of the UK pension fund.
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