Private credit, public interest
Oscar Mayer workers win reinstatement, compensation and union recognition
This has been coming for a while, but the fire and rehire dispute at food manufacturer Oscar Mayer in Wrexham has been resolved with important successes for the workers who had been striking.
The workforce, which at the start of the dispute was not covered by a recognition agreement, had been facing significant cuts to terms and conditions under threat of dismissal - better known as ‘fire and rehire’.
The workforce voted strongly for and successfully undertook strike action and at the same time Unite sought recognition through the statutory route under the Central Arbitration Committee. This was ultimately successful, with the CAC releasing an acceptance decision in mid April.
The CAC ruling is interesting in its own right as it sets out some of the employer’s arguments, including that fire and rehire is inherently likely to reduce support of unionisation:
The Employer further adding that the likelihood that a majority of workers in the proposed bargaining unit would favour recognition of the Union diminished with every week that passed. Approximately 307 workers in the proposed bargaining unit were currently serving out their notice and had not, at the time of writing, indicated whether or not they would be accepting the offer of re-engagement. In light of the industrial action, it was reasonable to assume that a greater proportion of union members would not accept re-engagement, than non-union members. It was the Employer’s view that as more workers left the business each week, it became less likely that a majority of the Union’s proposed bargaining unit would be likely to favour recognition of the Union.
There was also a significant investor element to this dispute.
Unusually, the owner of Oscar Mayer is a private credit manager called Pemberton Asset Management. Although firms of this type have a variety of strategies they often loan to companies alongside a private equity owner. In some cases, like Oscar Mayer, if the borrower gets into difficulties the lender can end up taking over. Whereas private equity managers are used to managing investee businesses private credit managers are not, which might be why they sometimes get into fights with the workforce.
There was a decent Bloomberg piece that made this point:
“private lenders are increasingly confronting the realities of running businesses, rather than just lending them money… Private credit funds typically don’t get involved in day-to-day management. But many businesses fell foul of loan agreements as the costs on their floating-rate debt ratcheted higher along with interest rates, and had to cede control to lenders.”1
Private credit has become an increasingly popular asset class in recent years, and some big managers have moved into this space. Pemberton is part-owned by LGIM and has featured quite heavily in the latter’s strategy presentations.
In the case of Pemberton, a not insignificant underlying group of clients are local government pension funds, including Clwyd Pension Fund which covers the area where the dispute was taking place. Pemberton is also included in private credit funds run by two LGPS pools - WPP and London CIV.
Therefore an important element of the campaign in support of the strike focused on Pemberton’s investor clients.
Some examples include:
Clywd Pension Fund pledging not to invest more with Pemberton
Unite calling for Pemberton to be booted out of the PRI
Actions outside committee meetings of client pension funds
Actions at investor events including in Miami
The end to the dispute at Oscar Mayer is first and foremost down to the strength of the industrial action. There were very strong votes in favour of strikes and those strikes were in turn very solid. It also became a huge story in Wrexham. It also seems clear that the action with investors was a contributory factor in encouraging resolution of the dispute.
Zooming out, there has been quite a bit of commentary about the wave of money going into private credit as an asset class. Big new ideas in asset management tend to result in bubbles. Initially, every asset manager tries to get a piece of the action and products proliferate. Later comes disappointment and retrenchment, something familiar to people in the ESG world right now. Private credit is definitely still on the way up, but not every fund is going to do well.
A bigger consideration is whether this type of lending may create other problems. Certainly in the case of Oscar Mayer the floating rate nature of much of its borrowing meant its interest costs went up substantially at an unhelpful point.
And this is a feature not a bug, as snip from Pemberton’s own blurb explains:
“The increase in yields from private debt comes from the floating rate nature of the loan, so as interest rates rise the interest rate on the loans goes up accordingly.”
Whilst broadly welcoming the role of private credit as a funding source for corporates, the Bank of England has sounded a few notes of caution, about the impact of lending on borrowers, the lack of transparency and the potential correlation of asset classes. That said, we have gone through a period of high interest rates without a large number of private credit borrowers going under. Perhaps this is a case of kicking lots of cans down the road?
In any case private credit is here to stay as an asset class. That means that it is likely that both workers and investors are going to come across more examples where firms like Pemberton are in the mix. And in turn firms like Pemberton are likely to find more examples where they are pushed over their ESG standards.
For what it’s worth, there are still important gaps here. It remains the case that policies - of both asset managers like Pemberton and asset owners like LGPS funds and pools - are generally very limited when it comes to workforce topics. There are pages and pages of commentary about climate change based on future scenarios, but often little or nothing about how the investor will act in relation to workforce concerns. Similarly, in my experience consultant analysis of managers is often very thin when it comes to these issues. All that means that there is little in place for anyone to use as a guide when things do go wrong.