Covenant advisory
Our purpose is to enable trustees, sponsors and other stakeholders to manage covenant risk and make the best decisions for members, by providing clear advice for both day-to-day and exceptional situations. We apply a high level of expertise, agility and judgement to identify, evaluate and manage key pension and covenant risks.
Our approach
Our award-winning covenant team advises over 160 trustee and corporate clients with sponsors operating across the full range of sectors and schemes ranging from small to amongst the largest in the country, representing collectively over £300bn of assets. We have advised on many of the largest corporate transactions, including public takeovers, demergers, disposals, and debt restructurings.
We focus on delivering strategic, commercial advice in a clear and proportionate way. We seek to devise solutions that recognise the goals of the trustee and the sponsor and anticipate future events, setting the scheme up for the longer term, not just a valuation cycle.
We support our clients through the full lifecycle of a DB scheme, helping them to navigate the changing risk profile as they move from a high covenant reliance phase through to the residual risk phase, where covenant reliance is low and the focus is on identifying and mitigating any material risks to achieving the scheme’s long-term objective. We adapt our approach at each stage to ensure it is proportionate to the needs of our client.
Our long-term client relationships are testament to our role as a trusted adviser, the value of our input, and our ability to work effectively with all stakeholders.
Our covenant services
Our key offerings include:
- Covenant assessment and monitoring: Our proportionate approach reflects the level of funding and investment risk in the scheme and the key characteristics of the employer covenant. Our analysis covers forecast cash flows, prospects and the period over which reliance can be placed on the employer, as well as evaluating any contingent support.
- Corporate activity and restructuring: We are experts at helping trustees navigate corporate transactions and restructuring and distressed situations, guiding them through what can be a complex and fast-moving situation. We find solutions which optimise the outcome for members not only as an immediate result of the transaction, but also for the long term. Scenario analysis and contingency planning help trustees anticipate and prepare for future events.
- Journey planning: Covenant is at the heart of a scheme’s journey planning. Our strategic advice, integrated with that of the scheme’s other advisers, enables clients to evaluate all the options available, from transferring risk to an insurer to running on, as well as identifying the best way to achieve this, taking account of the amount of risk that can reasonably be run along the journey We are experts at devising contingent support packages which protect members’ interests and meet the sponsor’s objectives.
- Counterparty risk: We have significant experience in undertaking due diligence on potential buy-in/buy-out providers, including having advised on some of the largest ever risk transfer deals, as well as evaluating alternative solutions including consolidators and capital-backed journey plans.
- Corporate advice: We help employers navigate the legal and regulatory requirements relating to covenant to secure the optimal outcome for all parties, whether as part of ongoing funding discussions, journey planning or in the context of corporate activity.
- ESG and sustainability: We assess the employer’s ESG approach and risk profile and how this may impact the covenant, through a combination of a critical review of its disclosures, industry benchmarking and financial modelling, as appropriate.
