LONDON, Jan 29 (Reuters) - GKN issued a new salvo against Melrose’s hostile bid on Monday by warning that raising the company’s debt ratio could reduce the strength of its covenants and therefore increase the cash needed to fund its pension.
The British engineering group said the strength of its covenant was critical to its investment strategy and the amount it paid into its schemes, and it said it was assessed at the “high end of good” during its last triennial valuation.
It said Melrose had stated it would increase GKN’s leverage to 2.5 times core earnings, materially higher than the leverage level of 0.6 times as at 30 June 2017.
“This may have implications for the covenant strength of the company, the level of the technical provisions deficit and therefore the level of immediate and/or long term cash funding requirements,” GKN said.
Reporting by Paul Sandle; editing by Kate Holton