Lehman Brothers' European business completed a £675 million ($1 billion) bulk annuity transaction for its U.K. defined benefit plan with Rothesay Life, said Ben Stone, senior partner at PricewaterhouseCoopers and lead adviser on the deal.
PwC acted on behalf of Lehman Brothers International (Europe), which is in bankruptcy administration and provided financial support to secure full benefits for participants in the pension fund, reflecting a settlement agreement between the trustees of the pension fund and LBIE's joint administrators. A £184 million deal to enter into a buyout was announced last August.
The deal is the largest bulk annuity transaction announced so far in 2015 in the U.K. Rothesay Life will assume liability for the full benefits payable to all members of the pension fund.
“(That agreement) kicked off the process of seeing if a buyout was affordable, in terms of paying benefits (to members) in full,” Mr. Stone said in a telephone interview. “We also helped to put in place an asset strategy to hedge vs. movements in the buyout prices that we received. We had a panel of five or six insurers interested. In looking at their prices and understanding how they moved, we could change the scheme assets to reflect that. Therefore, over the pretty turbulent time for the markets (at the end of last year and early this year), that allowed the deal to stay alive and affordable,” Mr. Stone said.
The initial deal is a buy-in transaction, which will convert to a full buyout in due course, said a Rothesay Life news release.
Since Lehman Brothers' insolvency in 2008, the pension fund has been subject to an assessment period. Certain benefit payments were therefore restricted. The assessment period ends in July, at which time restrictions will be lifted and benefits will be paid in full, including back payments. Mr. Stone said in a couple of months, it will be converted to a buyout from a buy-in.
Travers Smith advised the trustees of the pension fund. Consultant Aon Hewitt advised trustees on the investment strategy to track the bulk annuity price in the runup to the transaction. Rothesay Life was advised by Wragge Lawrence Graham & Co.