The Coats UK Pension Scheme has completed a £1.3bn buy-in with Pension Insurance Corporation, covering the remaining 80 per cent of the scheme's liabilities.

The transaction secured the pension benefits for 18,042 scheme members, building on a previous buy-in by the scheme in December 2022, which covered 20 per cent of the scheme liabilities.

This buy-in was highlighted as the "final and most significant step" in Coats' fully insuring its UK pension obligations, with all of the financial and demographic risks relating to the scheme's liabilities now fully hedged.

The agreement with PIC is expected to require up to £100m of additional funding from the group, with Coats making a £70m upfront cash contribution to the scheme and a further £30m provided initially as a loan to the scheme.

The deficit repair contributions to the scheme, meanwhile, will now permanently cease as a result of the agreement, having previously been temporarily switched off in January 2024.

In order to manage the scheme's "complex" illiquid asset holdings, PIC received illiquid assets in specie and agreed a deferred premium to allow timely redemption of further illiquid holdings.

The deal was also designed to ensure that, subject to customary post-transaction data reconciliations and the scheme liquidating certain assets in order to meet the deferred element, Coats will have the option to remove the scheme fully from the group balance sheet in the future at "very limited" further administrative cost.

LCP acted as lead consultants on the deal, while PIC received legal advice from Herbert Smith Freehills.

The trustees, meanwhile, received actuarial advice from LCP, legal advice from Sackers and investment advice from Redington, and the company was advised by Isio and Baker McKenzie.

Commenting on the deal, Coats Group chief financial officer, Jackie Callaway, said: "This brings us close to the end of a lengthy journey of funding our UK pensions.

“From having $3bn of liabilities across three schemes in 2016 with a technical provisions deficit of c.$750m, we are now securing fully insured benefits for our pensioners and removing volatility and uncertainty for our investors.

“Now that the scheme is fully funded and cash contributions have ceased this will lock in a significant improvement in the group's free cash generation.

“The completion of the buy-in reflects the constructive and collaborative working relationship between the group and the trustee and I would like to thank everyone involved for helping us get to this position, which will benefit all stakeholders."

Coats UK Pension Scheme trustee chair, and Independent Governance Group executive chair, Chris Martin, also highlighted the deal as a "significant transaction" for the scheme members and for the sponsor.

“The trustee is delighted to complete the transaction," he added. "I want to thank PIC for their innovative, flexible approach to addressing the complexity of the illiquid holdings, as well as our advisors LCP, Redington and Sackers for their support throughout.

"Critical to delivering this outcome and the continuity of service to members has been the outstanding team at the Coats Pensions Office.”

PIC head of origination structuring, Matt Richards, also highlighted the deal as demonstration of the group’s commitment to meeting trustee needs in challenging circumstances.

“It was a pleasure to work with Chris and the trustee team on this transaction," he continued.

“One notable feature of this transaction was the active support from Coats as sponsor, reflecting their experience of positive sentiment achieved by aligning shareholder and scheme member interests.”

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