Companies and pension scheme trustees should take steps to protect their schemes and their employer covenant from the fallout of any refinancing that they have undertaken, according to David Fairs, the Pensions Regulator’s executive director of regulatory policy, analysis and advice.

In a blog published on August 10, Fairs acknowledged the trend of employers seeking to boost their liquidity in the aftermath of the coronavirus pandemic. This, he noted, would include the agreement of new borrowing facilities, or extension of existing agreements.

Fairs said employers and trustees should consider the issue of refinancing incurring interest costs and fees, which could in turn impact an employer’s ability to pay pension contributions.

He urged trustees to understand the impact of replacing one kind of debt with another, as well as the implications for any changes to claim priority in the event of an insolvency.

He also warned that changes to financial covenants “could represent a power shift between trustees and lenders in the event of financial stress”.

Restrictive covenants could limit trustees’ abilities to agree funding plans for their schemes, he added, while a change in lender “may also facilitate engagement with trustees as a key stakeholder”.

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