On August 10, 2022, the Regulator published a
blog post written by David Fairs, its Executive Director, setting out the Regulator’s expectations of trustees and sponsoring employers in relation to refinancing in the current economic climate. The Regulator’s view is that a return to a "more normalised business environment" following the pandemic is likely to lead to the return of traditional refinancing and the agreement of new facilities, potentially carrying tighter restrictions and higher costs for employers.
Sponsoring employers and trustees are expected to understand the implications of refinancing on the employer covenant and to mitigate any detriment as much as possible. The post outlines the key areas parties should consider in relation to restructuring proposals, and highlights that these areas are likely to be challenging in the current inflationary financial climate.
The Regulator reminds trustees to engage with management well ahead of any potential refinancing to ensure they have a strong understanding of the employer's current debt structure. They should also consider debt covenants and refinancing within their monitoring, information sharing and contingency planning frameworks. Employers are expected to provide trustees with "meaningful and timely information". This could include forecasts, scenario analysis and other information provided to the lender which trustees may find helpful as part of their analysis and monitoring.
In calling for trustees to examine any refinancing the Regulator seems to be extending its reach into “day-to-day” refinancing arrangements rather than concentrating on corporate transactions and new financing. There is no legal requirement to provide this information, save in cases where the material detriment or other contribution notice triggers might engage, and it is odd to see this appear so casually and in an economy bordering on recession where lending might contract. There is also no mention in the blog of how this may dovetail with the notifiable events framework (expected to come into force this Autumn) which would require additional information to be given on some but not necessarily for all financing.
