Coats Group agreed to switch off pension deficit repair contributions starting Jan. 1, in a move that saw shares in the industrial thread producer jump more than 7%.
The sponsoring employer will pay a one-off lump sum payment of £10 million ($12 million) to the Coats U.K. Pension Scheme, Bristol, England, which is expected to move the plan into a surplus position, a regulatory filing said Dec. 7.
The deficit repair contributions will remain switched off as long as the funded level remains above 99%.
"We have made significant progress on pensions in recent years, and the news today is another major milestone that benefits all stakeholders," said Jackie Callaway, chief financial officer at Coats, in the filing. "We remain focused on making further progress in order to maximize Coats' free cash flow generation. We are continuing to work with the trustee of the scheme on a collaborative basis, with the medium-term aspiration of fully insuring the scheme, removing U.K. pension risk from the group balance sheet and optimizing our capital allocation framework to enable additional growth opportunities."
The latest triennial valuation of the plan, as of March 31, 2021, showed a deficit of £193 million. The plan was running a technical deficit of £25 million as of June 30.
Following the 2021 valuation, Coats agreed to pay deficit repair contributions of £21.6 million per year, on a monthly basis, through December 2028. By the fiscal year 2024, these payments will have increased to about £24 million per year, the filing said.
The sponsoring employer has embarked on a number of derisking projects for the plan over recent years, including a December 2022 buy-in with Aviva, which insured £350 million in liabilities.