UK – Cheese manufacturer Dairy Crest has agreed a £60m (€69m) asset-backed funding proposal with its pension scheme, using maturing cheese to protect the fund against company insolvency.
While asset-backed funding proposals are not unusual in the UK, and in fact were predicted to enjoy a “bumper year”, they often consist of portfolios of property.
The company is set to pay £60m into the scheme this year – £20m in previously agreed annual deficit contributions and a £40m one-off payment for 2013.
It added in a statement: “Dairy Crest has also provided the trustee of the pension fund with a floating charge over its maturing cheese inventories to a maximum realisable value of £60m.
“This will improve the pension fund’s position in the event of an insolvency while retaining funds within Dairy Crest.”
Despite the £60m cap on any payments to the fund, Dairy Crest said its maturing cheese was valued at £150m at the end of March.
According to the company’s most recent financial statement, the defined benefit fund had a deficit of almost £84m at the end of September, a £4m increase from March 2012.
While the use of property may be common, drinks company Diageo in 2010 sold its underfunded DB scheme £430m of maturing whisky, which it at the time predicted would generate returns of £25m a year over 15 years.
In other news, the DB fund for supermarket Tesco has seen its deficit increase by nearly £500m over the last year.
Publishing its 2012 annual report, the retailer said its deficit now stood at £1.8bn, despite the fund’s assets under management increasing by £561m to £6.1bn.
However, liabilities rose by nearly £1.1bn over the same period, standing at £7.9bn in December, up from £6.5bn at the beginning of 2011.
The company has seen its deficit fluctuate significantly over the past five years, measuring only £838m at the end of 2008, but rising to £1.8bn by 2010.
Overall, liabilities have risen by £3bn since 2008, with total assets only increasing by £2bn.
The fund currently invests more than half of assets in equities and a further 22% in fixed income.
The remaining £1.4bn was spread out over property and alternative assets, with £109m held in cash.
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