Dairy Crest has announced plans to use £60m worth of maturing cheese to back its pension fund liabilities.
The arrangement gives the scheme a floating charge over some the firm’s £150m inventory of maturing cheese which will crystalise in the event of an insolvency.
Dairy crest said the deal, which is designed to ease trustee concerns over the covenant following the £341m sale of spreads business St Hubert, would improve the pension fund’s position in the event of an insolvency while retaining funds within the group.
The firm will also make a one-off contribution of £40m to the scheme on top of its on-going £20m annual deficit recovery payments. The deficit in the scheme stood at £83.8m on an IAS19 basis as at November 2012.
Dairy Crest will use some of the proceeds from the sale of its French branded spreads business, St Hubert, towards the cash payment to the pension fund. The sale fetched €430m last year when Montagu Private Equity SAS acquired the firm.
The company has been working to reduce its pension deficit over the last five years. It closed its final salary linked pension scheme to new members in 2010 and completed a £300m bulk annuity deal in 2009, in which it exchanged UK gilts for an insurance policy to cover a portion of the pension liabilities.
The company’s chief executive Mark Allen said: “Following the successful sale of St Hubert, we have now restructured our balance sheet, putting in place a more appropriate capital structure. This will reduce interest costs going forward and underpin the dividend and still gives us scope to invest to grow the business.
“We are also pleased to have reached agreement with the trustee of the pension fund to improve its financial position at an acceptable cash cost to the company.”
The Dairy Crest deal comes three years after drinks giant Diageo transferred millions of barrels of maturing whisky to its pension fund in a bid to help plug an £862m pension deficit.
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