British drinks group Diageo has agreed on a plan with its British pension fund which will use up to 2.5 million barrels of maturing Scotch whisky to help tackle a deficit of £862-million ($1.3-billion U.S.).
The defined benefit plan was agreed after a triennial valuation of the UK Diageo Pension Scheme last April highlighted the deficit and triggered a requirement to agree a 10-year funding solution.
The whisky forms part of a deal designed to put just over £1-billion into the scheme, while conditional cash contributions into escrow will amount to £338-million.
The agreement will be submitted to the Pensions Regulator.
Diageo said it has formed a 15-year partnership under which the pension scheme will own a range of maturing whisky, aged up to three years, as assets. The partnership will involve 2-2.5 million barrels from distilleries in Scotland.
"This structure will generate an income to the UK Scheme which is expected to total £25-million each year over the term of the partnership," the company said.
At the end of the 15 years, the scheme must sell its interests to Diageo for an amount expected to be "no greater than the deficit at that time", which the company said would be up to a maximum of £430-million.
"This is not different from any other offering of property (as collateral)," said a Diageo spokesman.
Diageo, the maker of Guinness stout and Bell's whisky, said it would also pay £197-million pounds to the scheme, mostly from an escrow account.
It will further underwrite the reduction of the UK scheme deficit through an agreement to make conditional cash contributions into escrow account totalling £338-million, if an equivalent reduction in the deficit is not achieved over 10 years.
Diageo said it expected the annual payments to the UK Scheme of £25-million, plus the payments anticipated under the agreement it was now negotiating with the Guinness Ireland Group Pension Scheme will be "broadly cash flow neutral against the £50-million per annum which has been paid in respect of the UK Scheme since 2007".
"These arrangements will have no impact on the value of Diageo's net assets," the company said.
The UK defined benefit pension scheme was closed to new entrants in 2005.