PPF levy – fully baked at last?

By Julia Dickson

The PPF has provided an early Christmas present with its final consultation update, with a few tweaks to finalise the treatment of ABCs, exemption of mortgage charges and calculations using employee numbers in calculating PPF levy charges for 15/16.  So at this stage, more like the icing being applied to the Christmas cake, building on from the earlier baking and marzipan layering…

Certain other areas raised by the last consultation responses have been rejected as too subjective to implement, even though there may be commercial rationale behind them, as the PPF seeks to maintain its success criteria such as transparency and resilience to manipulation.  It’s a bit too tricky to start adding some more spice or removing a few raisins at this stage… so read on for the main final festive finishes:

- Non-property ABCs are confirmed as being eligible for PPF levy recognition, so long as they are valued on an insolvency basis, to ensure the lower of insolvency value or fair value in the most recent scheme accounts.  Interestingly in the detail, but highly relevant for loan note ABCs, the PPF’s earlier requirement for such loan notes to be backed up by security over assets of the counterparty have been dropped, a key change which we supported.

- Mortgage charge exemption is pretty much unchanged from the last consultation update.  As you may recall, the PPF has set up its calculation methodology such that recently issued security over employer assets (or “mortgage charges” as the PPF refers to this) will create a negative impact on PPF levy scores.  With this latest update, the PPF has now finalised those mortgage charges that it will exempt from PPF levy calculation:

• where the company – or now also the wider corporate group – has an investment grade credit rating, mortgage charge is exempt; so good news for groups with finance companies with investment grade ratings
• but no change to the materiality threshold whereby the charge needs to be less than 0.5% of total assets; a rather low threshold in our opinion 
• and disappointingly, the criteria for exemption on the basis of a refinancing under similar terms still remains narrow and we believe that genuine refinancings may not always satisfy all PPF required criteria

- Good news for employers of part time employees in that the PPF’s ratios using employee numbers will now be calculated using FTE numbers instead.  Such employers are likely to have a high number of employees but much lower number of FTEs, so in our experience, this latest change will be good pre-Christmas news for retailers in particular.

So at this stage it’s getting rather technical on these areas, but good news in that there will be clarity for those affected so that they can work on any certifications and / or structural solutions such as PPF compliant guarantees, required by 31 March 2015.

New Year resolution – revisit your previous understanding, check on what certifications are going to be required and engage advice early enough to implement.

We have a team of experts in this area to help guide you through the 2014 consultation changes and whether there may be options to improve your position.