LONDON (Reuters) -- A deal for 40,000 UK pension fund members of bankrupt U.S. auto parts firm Federal-Mogul appeared close on Thursday after administrators, trustees and unions welcomed a new offer led by U.S. financier Carl Icahn.
The offer, which follows months of negotiations, would allow Federal-Mogul Corp.'s UK subsidiary Turner & Newall to emerge from bankruptcy administration without compromising its UK pension fund claims.
Federal-Mogul is working through U.S. and British bankruptcy protection after it was hit by some $11 billion in asbestos litigation claims stemming largely from its UK operations.
"We are really optimistic that a deal is going to be done," said a spokesman for the union AMICUS, which represents many T&N pension scheme members.
T&N's plight is being closely watched by the UK government and pensions industry with the cost of paying for old age right at the top of the political agenda in Britain and the rest of Europe.
UK administrator Simon Freakley said he was assessing the offer, which he described as a "very positive development".
A spokesman for the pension fund trustees said, "This is a welcome step and the trustees will carefully consider the offer to ensure it's in the members' best interests."
The new offer means the pension scheme will continue as an active fund. However, if T&N went into administration again, the pension claims would have to be weighed against the asbestos claims, Freakley said.
The offer would mean the creditors, including Icahn himself, putting $25 million into the T&N pension scheme each year for the first three years after the firm emerges from administration, and then fully close the scheme's shortfall within 10 years, the Financial Times reported on Thursday.
The fund has an estimated shortfall of 875 million pounds ($1.58 billion), based on the cost of buying annuities for all its members.
"We received the offer at 5 p.m. last night and now we're looking at the implications, and whether it's the best deal for all creditors of the UK companies," Freakley added.
Icahn, the largest single holder of Federal-Mogul's unsecured debt, had previously offered to buy the T&N assets for $700 million in cash, of which $130 million would go to the pension fund.
The T&N case is seen as a key test of whether members of UK company pension schemes are at risk if a parent company goes bankrupt. Staff in UK engineering firm ASW, for example, lost some or all of their benefits more than a year ago when the firm went bust.
The UK regulator, the Occupational Pensions Regulatory Authority, has said it was unclear whether it could force a foreign firm to honor its UK pension commitments.
The UK government has created a 400 million pound package to bail out workers in schemes that have already been closed by a bankrupt parent firm, but critics say the package could be swamped if the T&N scheme failed.
Hundreds of British pension funds similar to the T&N scheme are in deficit, with the total deficit of top UK firms estimated at 42 billion pounds at the end of July, according to industry data.