United Utilities Strikes £1.8bn Deal to Reduce Pension Liabilities
United Utilities (UU), a prominent water group listed on the FTSE-100, has successfully reached a £1.8bn agreement to offload a significant portion of its pension liabilities. This move comes in response to increased scrutiny on the financial resilience of the industry. According to sources, UU, which serves over seven million customers in the northwest of England, has partnered with Legal & General (L&G) to handle future payments to pension scheme members.
Surge in Pension Risk Transfer Deals within the Water Industry
United Utilities’ agreement with L&G is part of a wave of pension risk transfer (PRT) deals being pursued by water companies. Specialized firms like Aviva and Pension Insurance Corporation (PIC) are actively engaged in similar agreements. These arrangements aim to transfer the responsibility of pension scheme payments to experts in managing pension risks.
Confirmation of United Utilities’ Deal with L&G Expected Soon
Sources indicate that United Utilities is likely to announce its agreement with Legal & General on Monday afternoon. The deal signifies United Utilities’ commitment to proactively address pension liabilities and reinforce its financial stability.
Robust Financial Position and De-Risking Strategy Bolster United Utilities
United Utilities has emphasized its strong balance sheet and the fact that its pension scheme is fully funded. As a result of this solid financial standing, the company’s pension scheme trustees have implemented a de-risking strategy. They have chosen to insure approximately two-thirds of the pension liabilities with Legal & General, ensuring even greater long-term security for the schemes. This move strengthens United Utilities’ financial resilience, boasting the lowest level of gearing in the sector at 58% and ample liquidity to cover cashflow until at least 2026.
Water Companies’ Indebtedness Under Scrutiny amid Industry Turmoil
The water industry has recently faced significant turbulence, bringing attention to the level of indebtedness among water companies. Thames Water, for instance, is at risk of temporary government ownership. The company announced a £750m equity raise with its shareholders on Monday. However, the funding is subject to several conditions, including investor approval of the revised business plan.
Strategic Partnerships Strengthen Financial Resilience of Water Companies
United Utilities’ £1.8bn pension deal with Legal & General marks a substantial step towards securing the company’s financial position. By leveraging its strong balance sheet and fully funded pension scheme, United Utilities demonstrates its commitment to mitigating risk and ensuring long-term security for pension scheme members. As water companies navigate industry challenges, strategic partnerships, and proactive measures are instrumental in enhancing financial resilience in a demanding operating environment.