Serco’s pension trustees requested a standby credit facility in response to a rise in demand for collateral caused by a rise in gilt yields.
The pension schemes of Serco, the government contractor, have reached out to their sponsor for financial assistance in the wake of this week’s volatile financial market fluctuations.
The outsourcing giant’s pension trustees have reached out to the corporation in recent days to inquire about establishing a new credit facility in the case of a continuous onslaught of collateral calls.
The request is regarded to be exceedingly exceptional and illustrates the turmoil produced even in well-funded and well-managed business pension schemes by the rapid increase in gilt yields that followed Chancellor Kwasi Kwarteng’s fiscal statement last Friday.
To stabilize the market, the Bank of England intervened in the financial markets on Wednesday by committing to purchase tens of billions of pounds in government bonds over the following two weeks.
This followed a drop in the value of the pound versus the dollar to its all-time low and widespread concern among investors about their desire to purchase UK government bonds.
Ministers have attempted to attribute the instability to global market factors, but Mr. Kwarteng’s £45bn of unfunded tax cuts, unveiled in last week’s mini-budget, have been blamed by many analysts for igniting the most hazardous financial market rout since the 2008 banking crisis.
At its most recent half-year results, Serco’s retirement schemes had a surplus before taxes of £105.3 million, according to a source close to the company.
The source noted that the pension trustees’ request for a standby loan was merely to provide liquidity to enable the company to fulfil demands for further security.
This week, corporate pension fund trustees were forced to sell billions of pounds worth of equities and bonds to meet margin calls, requiring them to put up additional collateral, as rising gilt yields disturbed delicately balanced hedging schemes.
The instability has increased interest in so-called Liability-Driven Investing, in which many pension plans utilize derivatives and other financial instruments to match their long-term assets and liabilities.
Friday, the exact number of participants in Serco’s pension system was unknown.
The retirement savings of members are not at risk as a result of the decision to seek financial support from the scheme’s sponsor.
According to its most current financial reports, Serco makes set yearly deficit recovery payments of £6.6m until 2030.
Serco is one of the largest outsourcing companies in the United Kingdom, managing contracts for a variety of government departments.
This month, the corporation announced that its longtime CEO and grandson of Sir Winston Churchill, Rupert Soames, would retire.
He is recognized as one of the most competent top executives in Britain, having changed Serco’s fortunes since 2014, when he assumed control.
Both Serco and its pension trustees refused to comment.
