By Ian Walker and Anthony O. Goriainoff

Trustees of the Wm. Morrison Supermarkets PLC pension scheme said Tuesday that an offer for the U.K. grocer would materially weaken the program's existing sponsor covenant unless extra support is provided.

The trustees said the Morrison's Retirement Saver Plan and the Safeway Pension Scheme are both in surplus and benefit from freehold properties held within a funding partnership structure, but don't have enough resources to secure or "buy out" scheme benefits with an insurance company.

The schemes are therefore currently dependent on Morrison group companies contributing into the programs to support member benefits, known as the sponsor covenant.

"Should those companies become insolvent the schemes would have unsecured creditor claims against those companies," the trustees said.

The trustees said they are therefore focused on agreeing on extra security to provide covenant support for the schemes and have been in talks with the Fortress consortium since early July. However, the trustees said they haven't progressed talks with Clayton, Dubilier & Rice, LLP although they have had an introductory meeting with them.

"We hope agreement can be reached as soon as possible on an additional security package that provides protection for members' benefits," said Steve Southern, Chair of Trustees for the Morrison's Retirement Saver Plan and the Safeway Pension Scheme.

Clayton, Dubilier & Rice said late Tuesday that they have set out a number of intentions as part of the offer in relation to pension rights, the schemes' future funding arrangements, and their desire to "engage in a constructive and timely dialogue with the trustees."

It added that it met with the trustees on Aug. 17 to explain their proposal and strategic vision for the business and intentions for stakeholders, noting that it had a positive discussion with them, and that the dialogue is now progressing.

"CD&R intends to continue this dialogue to ensure that the trustees understand and support the sponsor covenant following the completion of the CD&R Offer. CD&R understands and accepts that the trustees consider this dialogue is likely to extend to considering arrangements which provide additional security to the schemes through an appropriate mitigation package," it said.

On Friday, Morrisons agreed to a takeover from Clayton Dubilier & Rice LLC that values it at 7 billion pounds ($9.6 billion) and withdrew its recommendation of a previous bid from a consortium led by SoftBank Group Corp.'s Fortress Investment Group LLC.

The U.K. grocer and U.S. private-equity firm CD&R said late Thursday that they reached an agreement on the terms of a cash offer for 285 pence a share. This compares with the latest offer from the Fortress-led consortium of 272 pence a share, and also represents a 2.1% premium to Morrisons's Thursday closing price of 279.20 pence.

In response, Fortress said it was considering its options in respect of its own offer. A further announcement will be made in due course, Fortress added.

Write to Ian Walker at ian.walker@wsj.com and Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com

(END) Dow Jones Newswires

08-24-21 1319ET