T&N: Who Gets What?
Whether dying victims or aging pensioners deserve first crack at a moribund company's finite resources is a decision that would tax the wisdom of King Solomon. This, however, is only one aspect of the on-going saga of the Federal-Mogul(FM)T&N reorganization process.1 As global stakeholders continue to jostle for position, T&N's UK administrators find themselves increasingly disenchanted with the plans of their US counterparts. On August 5, 2004, Simon Freakley, head of the court-appointed team of UK administrators, said:
As administrators, we need to be confident that whatever reorganization plan we support represents the best outcome for all T&N's creditors. The Plan of Reorganization as it now stands is valued at 7.24 cents on the dollar; it is likely that, unless a more generous offer is tabled, a controlled sale of the company's UK assets could yield several times that amount. Although this is a step we are reluctant to take, it is something that warrants consideration. It is essential that any Plan of Reorganization deals fairly with UK pensioners and UK asbestos creditors as well as all US creditors.2
A year ago, Tim Culverhouse of Alexander Forbes, the independent trustee appointed to oversee the pension fund operated by T&N Ltd., identified the substantial short-fall in the pension fund which could force the closure of the 1 billion scheme. If the pension scheme were to be wound up, there would be a £875 million deficit. Concern over the pension situation prompted the administrators to seek guidance from the High Court:
The Court handed down an Order directing us (the administrators) to withdraw the subsidiary companies from the T&N Pension Scheme. As well as maintaining the balance between all creditors, this action protects the interests of those employees who are members of the T&N pension scheme, whilst we progress toward an exit from Administration and Chapter 11 for the group. In the event of a wind-up of the scheme, current pension law provides that retired members get paid their benefits first. Also, deferred members (former employees who have yet to retire) do not make ongoing contributions to the scheme We wish to make it clear that the scheme is still open - it hasn't terminated nor is it currently subject to winding up
A trust account to collect pension contributions from the 2,500 T&N workers who the Court removed from the underfunded scheme is being set up; information regarding T&N pension arrangements can be obtained by contacting a telephone hotline.3
In light of the recent collapse of major UK pension schemes, the concern of T&N's pensioners and employees is understandable.4 Headlines such as Wind-up of T&N plan is likely, 40,000 face pension uncertainty, Thousands of UK workers set to lose pensions through company administration do little to reassure the T&N workforce. A leading UK pensions expert believes current workers could get less than half of what they were expecting if the scheme were to be closed down. It is not in anyone's interests that the scheme be allowed to wind up, said a UK trade unionist. If that happens it could potentially jeopardize 4,000 UK workers jobs as well as 40,000 people's pensions... On August 10, 2004 representatives from three UK trade unions, Amicus, GMB and TGWU, expressed their members' fears at a meeting held in New York between the independent trustee, Quintin Heaney of Alexander Forbes, and FM's creditors including Carl Icahn, the billionaire investor who, as FM's major US bond holder, controls the company in bankruptcy. An Amicus spokesperson characterized the four hour meeting as a dogfight. The Americans are like a pack of wolves and they do not understand UK trust law, he said. The independent trustee, having turned down FM's previous offer of £65 million plus £7 million/year to fill the pension deficit, maintained that contributions of £29 million/year for eight years were needed.
A second meeting on August 11 was held to explore options for a pensions' top-up; it is not known if any offer was made. The independent trustee is obliged to wind up the T&N Pension Scheme if the deficit is not plugged. If this happens, workers who have not yet retired could get less than 40% of what they were expecting according to one financial expert.5 The Pension Protection Fund, due to be introduced by the UK Government in April 2005, could come too late for those whose T&N pensions are at risk; they would also be unable to make claims on the Government's £400 million rescue pot for those affected by pension shortfalls prior to May 2004. T&N's retired employees are currently receiving their full pension entitlements and this is likely to continue, but payments may be frozen and not inflation-linked.
August 15, 2004
1 In 1998, the US automotive parts manufacturer, Federal-Mogul Corporation, bought the UK-owned company T&N Ltd.
2 On June 4, 2004, the United States Bankruptcy Court for the District of Delaware approved the Disclosure Statement respecting the Third Amended Joint Plan of Reorganization for Federal-Mogul Corporation. The Bankruptcy Court will consider whether to confirm the Plan at a hearing on December 9, 2004.
3 The help-line is managed by AON, the company which runs the T&N Ltd. pension scheme: tel: 0161 834 0594.
4 There are: 4,000 current T&N UK employees at 11 UK factories located in Bradford, Lydney, Chapel-En-Le Frith and Slough, up to 20,000 deferred pensioners and 20,000 existing pensioners. T&N's UK businesses had net sales of approximately £218 million ($402 million) for the year ended December 31, 2003.
5 Union 'optimistic' over T&N talks. July 26, 2004. BBC website: http://news.bbc.co.uk/hi/business/3928945.stm