Visteon Corporation has struck a deal to purchase $350 million in lifetime annuities from Prudential.
With this transaction, the auto parts manufacturer will hand over roughly one-third of its $1.1 billion in outstanding defined benefit liabilities to the Newark, NJ-based insurer.
“The transaction is designed to further Visteon's objective of reducing risk in the pension plan and better managing the ongoing cost volatility of such plans, while continuing to meet its obligation to all current participants,” Visteon, a spin-out company from Ford, said in its announcement.
The deal requires no immediate cash infusion from the corporation, as existing plan assets cover the near-term annuity cost.
Still, the market did not deem the bulk annuity purchase a net positive for Visteon, which trades on the New York Stock Exchange under the ticker symbol VC. The pension-risk transfer (PRT) became public shortly before trading opened on July 16, and the stock ended the day marginally lower at $97.43 (-0.28%).
Towers Watson acted as the company's consultant for the transaction and Fiduciary Counselors served as an independent fiduciary in the annuity provider selection process.
Prudential has dominated the US pension-risk transfer space, including three consecutive wins in that category at the CIO Innovation Awards.
The insurance giant made history in the 2012 with a $26 billion deal to take over a large portion of GM’s pension liabilities, which had ballooned to 400% of its market capitalization.
Just months later, Prudential announced it had landed another whale of a PRT contract: $7.5 billion for telecom firm Verizon’s defined benefit liabilities, covering roughly 41,000 union retirees.
A group of Verizon pension members affected by the imminent PRT took the two counterparties to court, earning class-action status. The members filed the lawsuit under the premise that annuities did not match the security of federally-regulated corporate pensions. At the 11th hour, with just days before the so-called drop-dead date for the PRT contract to expire, a district court in Dallas struck down the lawsuit.
Visteon, for its part, took pains to convey that “the pension transfer will not change the amount of the monthly pension benefit received by affected retirees and surviving beneficiaries.”
Prudential, it pointed out in its announcement, had made an “irrevocable commitment” to pay this portion of Visteon’s defined benefit liabilities.
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