The Pension Protection Fund (PPF) has reached an agreement with Toys R Us on a solution for its defined benefit (DB) pension scheme, and will be voting in favour of the retailer’s restructuring proposal.
According to Malcolm Weir, the PPF’s director of restructuring and insolvency, the company agreed to pay £9.8m into Toys R Us Pension & Life Assurance Scheme, composed of £3.8m in 2018, with a further £6m promised over 2019 and 2020.
He said: “The deal also sees the pension deficit recovery plan shortened to ten years, while the company has undertaken to seek additional support from the US parent company for the new plan for the pension scheme.
“Furthermore, the trustees will have greater powers if any of the above conditions are not met.”
Toys R Us filed for bankruptcy protection in the US in September and announced earlier this month that it would be instigating a company voluntary arrangement (CVA), through which it will seek creditor approval to reposition its real estate portfolio.
This plan will entail closing at least 26 of its 100 British shops.
The retailer is accused of waiving a sum of £584.5m in loans owed to it by a firm in the British Virgin Islands in the year ending January 2017, when it made a pre-tax loss of £673.3m.
The firm had stated in its accounts this was part of a "group reorganisation".
Earlier this week, it was revealed that the pension scheme trustees weren’t informed about this loan, according to the chairman of the Work and Pensions select committee Frank Field.
The pensions lifeboat announced on Wednesday (20 December) that it would be voting against the CVA, as it needed more assurances that the scheme would be protected in the process.
Toys R Us scheme has around 600 members, and a deficit of £30m.
Mr Weir said that the new offer from Toys R Us “goes a long way to addressing the PPF’s concerns and in de-risking the pension scheme, offering greater protection for the current and retired members” of the plan.
Graham Barker, chair of the trustees of Toys R Us Pension & Life Assurance Scheme, and Tom Lukic, director at Dalriada Trustees, company appointed as professional trustee to the scheme, will now be writing to members “as soon as the result of the vote is known”.
They said: “Whilst the trustee board very much appreciate the impact of the CVA on a number of employees and stores, we are pleased that agreement has been reached for the PPF to vote for the CVA.”
According to Gabrielle Holgate, pensions lawyer and partner at Stevens & Bolton, this is a surprising outcome.
She said: “Earlier this week it looked very much like the PPF, standing in the shoes of the Toys R Us pension scheme’s trustee, would vote against the restructuring plans.
“The PPF was put in a difficult position. If it refused to agree to the restructuring it would likely take on the pension scheme in the very near future, assuming a £30m cost for doing so, but if it agreed without obtaining any concessions, the same outcome could be reached, only delayed. This would only increase the cost to the PPF of taking on the scheme at a later date.”
“It may seem odd that the PPF could claim preferential treatment from Toys R Us […]. But the PPF was in a unique position, representing not only the pension scheme, but also other pension scheme sponsors, who could ultimately have to pay towards compensation if the scheme falls into the PPF.”
maria.espadinha@ft.com
