Carillion crisis sparks pension deficit summit

Government officials and regulators will hold crisis talks on Friday aimed at safeguarding pensioners’ interests at Carillion, the vast construction group which is racing to avoid collapse.

Sky News has learnt that senior civil servants from the Cabinet Office are expected to attend an emergency summit that will also include representatives from The Pensions Regulator (TPR), Pension Protection Fund (PPF), Carillion’s pension trustees and an assortment of City advisers.

The talks will take place 48 hours after the company, which is a major Government partner on HS2, the new high-speed rail link, presented a revised business plan to scores of lenders.
Sky News revealed last weekend that Carillion was due to meet banks within days amid an urgent need to secure new funding.
One insider put the amount of new short-term funding required by the company from the end of this month at around £300m.
Unless that funding materialises – either from commercial lenders or in the form of emergency Government support – Carillion would be likely to crash into administration, threatening the jobs of at least some of the 19,500 people it employs in the UK.
Carillion has a pension deficit of roughly £580m, although this figure would be expected to rise sharply if measured according to the cost of insuring its various retirement schemes on a full buyout basis.

Image: Badly performing contracts are contributing to Carillion’s financial problems
The company itself is not expected to attend the pension crisis summit.
Its last annual report said there were 28,500 members of various defined benefit pension schemes.
A TPR spokesperson said: “We have been and remain closely involved in discussions with Carillion and the trustees of the pension schemes as this situation has unfolded.
“We will not comment further unless it becomes appropriate to do so.”
The PPF, which would take on responsibility for paying pensions to thousands of current and former Carillion workers if it collapses, said: “The PPF is aware of the discussions between the company, Government and banks and, along with the Trustees and the Pensions Regulator, will act as it always does to protect the interests of Carillon scheme members and levy payers.”
Carillion’s shares rocketed on Monday when some in the City misinterpreted last weekend’s story as a sign that a rescue deal was about to be agreed.
The company was then forced to issue a statement to the stock market that it knew of no reason for investors’ sudden optimism.
The rescue plan shown to lenders on Wednesday includes handing back some loss-making contracts, revising the terms of others and potentially accepting financial support from the Government if it cannot secure it from private sector sources.
Carillion’s large syndicate of lenders includes Barclays, HSBC and Santander UK, as well as a host of overseas firms.

To date, many of the banks have indicated that they are reluctant to provide additional funding given the potential for huge losses on their existing exposure.
Their attitude is said to have prompted senior figures close to Carillion to discuss the possibility of emergency financial support from the Government.
A number of disposals aimed at raising cash, including that of its Canadian operations, are progressing more slowly than originally anticipated.

Image: Carillion is among firms with HS2 building contracts
Its only asset sale since the crisis erupted has been to offload a portfolio of healthcare contracts to rival outsourcer Serco for £50m – against a broader forecast for disposal proceeds of £300m.
If it survives in the short term, Carillion is also working on a plan to swap £1bn or more of its borrowings for new shares in the company, which is one of the Government’s most important infrastructure delivery partners.
Such a plan would leave its pension scheme, or the Pension Protection Fund, as a big shareholder.
The Wolverhampton-based group is the second-largest supplier to Network Rail and maintains approximately half of the UK’s prisons as well as roughly 50,000 homes for the Ministry of Defence.
It is also engaged in building the Aberdeen Bypass and was responsible for constructing the Tate Modern art gallery in London and the Channel Tunnel.
Last week, the company was dealt a fresh blow when the City watchdog launched a probe into the “timeliness and content” of statements it made to the‎ stock market about is financial position between December 2016 and July last year, when a massive profit warning sent its shares crashing by 75%.
Since then, the company has cleared out its executive team, including chief executive Richard Howson and finance director Zafar Khan.
Mr Howson was replaced on an interim basis by Keith Cochrane, the former Weir Group boss, with Andrew Davies due to arrive from Wates Group as his permanent successor on 22 January.
Carillion reported a first-half pre-tax loss of £1.15bn in September, while it announced just before Christmas that its lenders had agreed to defer a test of its borrowing agreements from 31 December to 30 April.
A Government spokesperson repeated a statement given to Sky News last weekend which said it was “committed to maintaining a healthy supplier market and work closely with our key suppliers”.