Terra Firma Cracks Pension Problems

Edmund Truell, the founder of Duke Street Capital, has offered to buy out unwanted assets in private equity firm Terra Firma's portfolio in a complex bid that could kick start activity for Pension Insurance Corporation (PIC).

Truell sold the majority of his interest in Duke Street this April and left the board of the private equity company, in order to concentrate fully on PIC. This was set up last year with backing from a number of investors led by JC Flowers.

PIC plans to take on the liabilities of final salary, or defined benefit, pension schemes in return for a one off payment, or premium. It is believed that PIC could offer this service to various companies in the Terra Firma portfolio if Truell succeeds in gaining control.

Truell is leading the consortium, which is backed by a range of investors, many of whom are also backing PIC. These include ABN AMRO, Coller Capital, Cycladic, HBOS, Istithmar, NIBC, Och Ziff, Royal Bank of Scotland, Sampo Life, Swiss Re and UBP Private Equity.

Two likely candidates in the Terra Firma portfolio to receive PIC's attention might be Thresher and Thorn. The former's pension fund has a liability, under accounting standard FRS17, of Gbp65m whilst the latter's is Gbp1.1bn, under the same measure. Both have deficits significantly larger than these reported figures.

Given that insurers of pension schemes tend to require premiums of more than 120% of the value of the outstanding total deficits, it can be assumed that Truell and co have not offered much to take these assets off Terra Firma's hands.

If PIC manages to agree terms with Truell's consortium, it is thought this could be the first of several purchases, via this arrangement, of unwanted private equity backed assets, affected by pension problems.

Thresher was acquired by Nomura for Gbp225m in 2000 and was then passed to Terra Firma in 2002. The 2,000-strong chain raised Gbp200m in late April through a sale and leaseback of properties.

Mid market investment bank Noble has also been appointed to sell the company's Scottish businesses Haddows and related chain Victoria Wine. These could fetch up to Gbp30m.

Other smaller assets in the Terra Firma portfolio, which might be sold, include Brighthouse, a TV furniture lender, and Quadriga, which makes TV systems for hotels.