By Nick Brown
LAS VEGAS, Feb 8 (Reuters) - Multi-employer pension plans
are creating obstacles for investors in distressed companies,
who may not understand the complex risks of taking on the legacy
costs of the companies they buy.
Hidden liabilities can cause legacy costs to rise over time,
which is causing some investors to think twice before buying, a
panel of bankruptcy and distressed investing professionals said.
The panel, speaking at the Turnaround Management
Association's annual Distressed Investing conference in Las
Vegas, pointed to costs that are not always apparent at the
outset, like added pension liabilities that are triggered when a
A major source of uncertainty are multi-employer pension
plans, in which anywhere from a handful to thousands of
companies contribute to the same fund, said Heather Lennox, a
bankruptcy partner at law firm Jones Day.
"If you're looking to invest in a company with
multi-employer plans ... your liability isn't controlled
completely by the company you're looking to invest in," Lennox
said. Such funds can become distressed or insolvent as other
contributing companies struggle and drop out, she said.
"It's controlled in part by whether another employer
liquidates," Lennox said. "It's those kinds of uncertainties
that have traditionally made investors concerned."
Multi-employer plans are in the forefront of the bankruptcy
world now, as bankrupt Patriot Coal Corp considers major cuts to
its retiree obligations. Because the Pension Benefit Guaranty
Corp does not insure multi-employer plans, a decrease in
contributions from Patriot could put the plan in trouble.
Such situations have become more common in recent years amid
economic strife, Lennox said.
But multi-employer plans are popular with unions. In United
Air Lines' bankruptcy, a dispute between the company and a union
over the fate of its pension was solved when the company agreed
to move the pension into a multi-employer fund, said Lowenstein
Sandler's Sharon Levine, who represents unions in bankruptcy
"Unions view pensions as almost a holy grail," Levine said.
"Part of the reason you give up present dollars is because you
know you're not going to be eating cat food in the future."
Lennox warned investors to hire employment lawyers to coach
them on legacy costs before making investments.
"Don't assume when you're doing due diligence for a company
that you can look at the current books and records and know what
the pension liability is," she said.
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