Sears to Contribute $407 Million to Pension Plans

Sears Holdings Corp. has closed on a new secured loan, and a mezzanine loan, for aggregate gross proceeds of $440 million, which it said it will use to contribute to its pension plans, according to SEC filings.

The loan is secured by properties that were previously subject to a ring-fence arrangement with the Pension Benefit Guaranty Corporation (PBGC). In accordance with a November 2017 agreement with the PBGC, Sears will contribute $407 million of the proceeds into the Sears pension plans.

Sears said the move exempts the company from contributing to its pension plans for approximately two years, except for a $20 million supplemental payment due in the second quarter of 2018. It also said it expects to pay down a substantial portion of the secured loan over the next three to six months using proceeds from the sale of the underlying properties.

The November deal provided approximately $500 million in funding for Sears’ two pension plans, which cover approximately 100,000 participants, including contributions already made by Sears since August 2017. The agreement amended a March 2016 agreement between PBGC and Sears, under which Sears agreed to protect the assets of certain special purpose subsidiaries holding real estate and intellectual property for the benefit of its pension plans.

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The amendment allowed Sears to monetize the real estate protected in the March 2016 deal, and use the proceeds to fund the pension plans. The non-real estate related pension protections in the March 2016 agreement were unaffected by the new agreement.

As part of the March 2016 agreement, Sears agreed to protect the assets of certain special-purpose subsidiaries holding real estate and intellectual property assets, including the Craftsman brand. The sale of Craftsman required the PBGC’s consent. In exchange for granting its consent, PBGC and Sears negotiated additional funding for the plans.

Tags: loan, PBGC, Pensions, Sears

The funding level of the 5,588 pension plans in the Pension Protection Fund’s (PPF) PPF 7800 Index dropped to 95.6% at the end of February from 96.9% at end of January, according to the UK’s pension lifeboat for collapsed companies.

The lower funded level was a result of the aggregate deficit rising £21.1 billion to £72.1 billion during the month. Total assets were £1.568 trillion ($2.2 trillion), while total liabilities were £1.64 trillion. There were 3,608 plans in deficit, and 1,980 plans with a surplus.

Although the funded levels dropped from the end of January, they were up sharply from February 2017, when the index reported a deficit of £242 billion, and a funding level of 86.2%. Total plan assets were down 0.5% from the end of January, but were up 3.7% from the same time last year. Meanwhile, total plan liabilities rose 0.8% during February, but were down 6.5% from the end of February 2017.

Among the plans that were in deficit, the aggregate deficit at the end of February increased to £187.6 billion from £174.2 billion at the end of January, but was down 39% from the year-ago month when the group’s combined deficit totaled £307.4 billion. Meanwhile, the total surplus of plans that were in surplus fell to £115.5 billion from £123.2 billion at the end of January 2018, but was up 89% from the end of February 2017 when the total surplus was £65.3 billion.

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The number of plans in deficit at the end of February increased to 3,608, representing 64.6% of all plans in the index, from 3,493 at the end of January (62.5%), and compared to 4,380 plans in deficit at the end of February 2017 (75.6%). At the same time, the number of plans in surplus decreased to 1,980 at the end of February (35.4%) from 2,095 at the end of January (37.5%), but was up 40% from 1,414 (24.4%) plans in surplus at the same time last year.

According to the PPF, liabilities increased 0.8% during February, as conventional 15-year gilt yields rose by 1 basis point, while index-linked 5-15 year gilt yields fell by 10 basis points. Assets decreased by 0.5% during the month as a result of the impact of lower equity prices. Compared to the February of last year, 15-year gilt yields were up by 25 basis points, index-linked 5-15 year gilt yields were up by 43 basis points, and the FTSE All-Share Index was up 0.7%. Equity markets and gilt yields are the main drivers of funding levels.