MFI gives pension fund secured creditor status in new banking arrangement

MFI gives pension fund secured creditor status in new banking arrangement

	Published : Sat, 18 Feb 2006 14:10 By : Phil Bateman Print this Story

LONDON: Several thousands of current and retired employees of troubled furniture retailer MFI Furniture Group Plc. are now assured of the safety of their pension funds, with the company deciding to promote its pension scheme to secured creditor status while it completed a new asset-backed secured banking facility, replacing its existing revolving credit facility.

This will ensure that the company's pension fund, which has one of the largest deficits in Britain, when compared with the size of the company, will have the first call on the assets of Howden Joinery, the company's most profitable subsidiary, if the group becomes bankrupt. The fund will also have the second call, after the group's bank, on the rest of the assets of the company. The fund had so far been an unsecured creditor.

The decision, which makes the company among the few to initiate such a step, came as the company completed a new 39-month, 150 -million-pound secured banking facility underwritten by Bank of Ireland's Burdale Financial Ltd and Lloyds TSB Group Plc. unit Lloyds TSB Commercial Finance, replacing the company's existing revolving credit facility.

The company said in a market statement Friday that the pensions regulator and the pension fund trustees have approved the scheme.

Company chief executive Matthew Ingle said the new facility will allow the company to focus on turnaround plans for U.K. retail and the growth of Howden.

Analysts reacted to the new arrangement saying while it looked promising at the outset, it has strings attached to it. The previous facilities were unsecured, while this is a secured facility and the pension fund is taking a charge.

In normal circumstances, the pension regulator would have insisted on the company using the 92 million pounds it got from the sale of its French business Hygena Cuisines SA to Swedish group Nobia AB, to reduce the deficit. However, it granted its approval for the new arrangement and MFI could use the funds to clear its debts.

The debt restructuring is one of the strategic steps of Ingle, who came in in October with a mandate to restructure the troubled retailer. Besides selling the French business, the company has withdrawn from joint ventures in Taiwan and the U.K., and closed its Howden Millworks business in the U.S. The company also received 21.8 million from a settlement with revenue & customs following a VAT dispute.

MFI is set to announce its financial results on 28 February.