UK- The number of pension funds seeking advice due to financially 'stressed' or 'distressed' sponsors is growing, a partner at specialist risk management consultancy Kroll has stated.
In most cases, these trustees had previously used Kroll's services to safeguard the pension fund during the buyout itself.
"We're seeing that now with a number of leveraged deals, where we were involved at the time [of the M&A activity] and now they're looking to refinance," he stated.
"There's been a tendency to paper over the cracks with increased borrowing. Investors have been making money through arbitrage rather than sorting out operational issues."
Squires claimed the credit crunch had seen those "cracks" come to light and left companies unable to refinance their debt due to a lack of willing lenders - pushing companies into financial difficulties and forcing the pension fund to compete with other creditors in securing financing.
However, Neil Carberry, head of pensions policy at the Confederation of British Industry (CBI), warned pension funds should not write their sponsoring companies out of the picture yet.
He said: "The 2004 Act means trustees and sponsoring employers have to agree a funding agreement that is affordable for the company, but trustees must bear in mind the best guarantee any scheme can have is a successful sponsoring employer."
He added: "It's not time to press the panic button yet."
Nonetheless, as the number of companies becoming financially challenged looked set to rise, Squires predicted this would be one of principal areas Kroll would advise on in 2008.
He stated: "Trustees need to seek appropriate advice - there could be tens or hundreds of millions of pounds in liabilities at stake."
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