Special purpose vehicles (SPVs) are legal entities, usually Scottish Limited Partnerships, that allow employers to transfer assets and rights to generate an income stream for an underfunded pension scheme. This reduces the employer's cash commitment and provides asset-backed security compared to a standard schedule of contributions. Key considerations for SPVs include accounting, tax, and actuarial impacts as well as ensuring the assets, capital triggers, and structure do not conflict with an employer's other obligations or a trustee's fiduciary duties.

1. What can you do to de-risk?
Special Purpose Vehicles
Matthew Giles
9 September 2010

2. SPVs – what are they?
 A legal entity (usually a Scottish Limited Partnership)
 Sponsoring employer and the pension scheme are partners
 Employer transfers in assets and rights
 Generates income stream
 Assets can revert to employer based on funding trigger
 Or pass to scheme on insolvency event

3. SPVs – why use them?
 Reduces employer’s cash commitment to the pension scheme
 Net present value of future expected cash flows reduces the deficit
 Provides additional asset-backed security compared to cash
promise under a schedule of contributions
 Potentially facilitates a longer recovery plan than would have
otherwise been permitted
 Avoids trapped surplus risk

4. SPVs - which assets can be used?
 Real estate (via sale and leaseback arrangements)
 Inter company loan structures
 Intellectual property rights
 Other assets

5. SPVs – what are the key considerations?
 Accounting and tax position
 Banking covenants
 Investor relations issues
 Valuing the assets / the SPVs “covenant
 Actuarial position
 Capital transfer triggers
 Trustee’s fiduciary duties

6. What can you do to de-risk?
Special Purpose Vehicles
Matthew Giles
9 September 2010