BHS pension gap 'wider than thought'
Department store chain BHS's pension scheme liabilities may be bigger than previously thought, court documents have revealed.
The precarious situation comes as the company tries to slash its rent bill with landlords to survive.
BHS is trying to secure what is known as a Company Voluntary Arrangement, a form of compromise with its creditors.
Its pension scheme deficit stands at £207m, but it is understood the current working deficit is much higher.
The 147-page document, filed last week, is a sobering read.
According to the documents, the scheme's buy-out valuation has now ballooned to £571m. In other words, this would be the cost if an insurance company were to take over the pension liabilities. This, however, is an unlikely move.
BHS is already in discussions with the Pension Protection Fund, the government-supported rescue agency as well as the Pensions Regulator and the BHS pension trustees on addressing the deficit.
The PPF pays compensation to members of pension schemes when a company goes under and does not have enough assets to pay out to savers.
BHS insists that it continues to meet its pension payment obligations.
But in the submission, BHS's directors are clearly hoping that the two pension schemes will be transferred into the PPF and that the company would have no further liability to fund it.
The chairman of the BHS Pension Trustees, Chris Martin, told BBC Radio 5 Live's Wake up to Money programme he did not think there was a future for the schemes outside the PPF, even if the business was successfully restructured.
He also valued the combined pension scheme deficits at around £500m.
In the CVA documents, there is also a stark warning what will happen, should the CVA not get approved.
"It is very likely that BHS Limited will no longer be able to trade as a going concern, which would result in the appointment of administrators," the company said.
The documents reveal that BHS has been loss-making for seven consecutive years.
It was sold for a £1 a year ago by Sir Philip Green to Retail Acquisitions. He wrote off £215m of debts in the process. It has been reported that Sir Philip has been asked to make a multi-million pound voluntary contribution to the cost of restructuring the pension scheme.
The new owners, Retail Acquisitions, are a little-known group of financiers. This has prompted lots of questions about the long-term survival of BHS and the future of its staff when the sale was announced.
A turnaround plan has been under way, but the document reveals the scale of the challenge.
Last year, some major suppliers had their credit insurance cover cut. As a result, BHS had to put aside £25m to secure delivery of goods, which had a "substantial negative" impact on the company's available cash.
Also, it says, Christmas trading was poorer than anticipated, placing additional pressure on BHS's ability to continue to trade.
"Without a reduction in BHS's lease obligations as planned under the CVA proposal, the business does not have the working capital capability to meet its debt and working capital requirements beyond the next rent quarter date," says the court document.
Creditors have to agree that by 23 March, just before the next big rent bill is due.
BHS says it has been paying over the odds on too many of its leases and that reductions are needed to reset the business and put the chain on a more secure financial footing.
The company spells out the alternative for its landlords: "Unsecured creditors (including landlords) will receive a greater return on the amount owed to them in the CVA proposal than they would do if BHS Limited were to be subject to an administration."
The amount owed to unsecured creditors is huge. The documents state that if BHS was liquidated, they would stand to lose up to £1.3bn. But this figure does include the elevated buy-out figure for the pension deficit.
Nevertheless, the potential fall-out is very great indeed.
"It's a complete mess," one veteran property told me.