On April 18, 2013, PBGC filed a complaint (PBGC v. Saint-Gobain Corp. Benefits Comm., E.D. Pa. Case No. 13-02069) to involuntarily terminate a defined benefit plan sponsored by Saint-Gobain Containers, Inc. before Ardagh Group, S.A. acquires Saint-Gobain through a share purchase. PBGC alleges that the plan is underfunded by approximately $523.7 million and that the sale will transfer the plan from Saint-Gobain’s “investment-grade” controlled group to Ardagh’s controlled group, unreasonably increasing PBGC’s potential long-run loss from the plan.
PBGC likely learned of the transaction from its Early Warning Program, through which PBGC attempts to identify corporate transactions that could jeopardize defined benefit plans. This complaint demonstrates PBGC’s willingness to seek involuntary plan terminations when it is unable to negotiate additional contributions or other security for underfunded defined benefit plans within the context of corporate transactions, even when the plan sponsor will continue as a going concern after an arms-length transaction.
PBGC particularly monitors the following six types of transactions through its Early Warning Program: 1) controlled group breakups; 2) sales of corporations that will transfer significant underfunded pension liabilities; 3) leveraged buyouts; 4) major divestitures by plan sponsors who will retain significant underfunded pension liabilities; 5) payments of extraordinary dividends; and 6) substitutions of secured debt for significant amounts of previously unsecured debt. When planning such transactions, companies that sponsor underfunded defined benefit plans should prepare for inquiries from PBGC and the risk of involuntary plan termination actions.