LONDON -- An offer by bankrupt U.S. auto parts maker Federal-Mogul to pensioners of its UK unit is still well short of the fund's claims and increases the chance of the British firm Turner & Newall being sold, its trustee has said.
"Discussions with Federal-Mogul and its creditors about a settlement of the pension scheme's claim have been continuing," independent trustee Tim Culverhouse of Alexander Forbes Trustee Services wrote in letter to members, obtained by Reuters.
"Unfortunately there continues to be a substantial gap between the amount which I believe would be a fair settlement of the pension scheme's claim and the amount which Federal-Mogul is prepared to pay. These discussion carry on," Culverhouse said.
Late last year Federal-Mogul, whose biggest creditor is U.S. financier Carl Icahn, withdrew its previous offer to continue the deficit-laden pension scheme with 37,000 members and make minimum payments to the fund.
The trustee said then the company had withdrawn because of uncertainty over the new statutory regime in Britain which comes into force under the Pensions Act on April 6.
T&N is under UK administration and Federal-Mogul under U.S. Chapter 11 bankruptcy protection -- which they both entered in 2001 to be shielded from huge asbestos liability claims.
These were largely derived from T&N, which Federal-Mogul bought in 1998.
On Thursday, U.S. Sen. Arlen Spencer, the main author of a plan to compensate asbestos victims from a $140 billion fund, said in Washington he was close to getting Republican backing in the Senate Judiciary Committee for the legislation.
T&N PENSION DEFICIT
The T&N pension fund has an estimated 875 million pounds ($1.68 billion) deficit on total liabilities of around 1.9 billion pounds, but the deficit could be reduced moderately if the British unit was wound up, with the value of its assets previously calculated by a UK court at 125 million pounds. "If the pension scheme had to wind up after April 6, its assets would be sufficient to cover roughly 73 percent of the benefits of members who have reached normal pension age and roughly 65 percent of the benefits of members still under normal pension age," Culverhouse said in his letter.
He said there is a good chance the T&N scheme would qualify for the UK's new Pension Protection Fund (PPF), which is intended as a safety net to stand behind benefits of final-salary pension schemes in the event a company goes bust with an underfunded retirement plan.
"If the pension scheme qualifies for the PPF, the level of compensation for a member who has reached normal pension age is 100 percent of the member's own benefits.
"Pension increases will be very limited since they will relate to any period of active membership from April 6, 1997, only and will be capped at 2-1/2 percent," Culverhouse added.
But leading independent UK pension consultant John Ralfe said in a note distributed by RBC Capital Markets that based on the figures from the T&N trustee, PPF compensation will be around 225 million pounds.
This would leave scheme members losing around 550 million pounds or almost 30 percent of their pension promises.
"Much of the loss is from the limited inflation-linked PPF pension increases. The loss is particularly tough for pensioners who retired before 1997, who would receive no inflation-linked increases from the PPF," Ralfe said.
A PPF spokesman declined to comment on the T&N case.
Pension deficits are a hot political issue in Britain, with the ruling Labor Party widely expected to call a general election in May, after wooing the influential "grey vote" with financial sweeteners in the UK's annual budget on Wednesday.