To support large businesses during the current crisis, the Bank of England has announced a new lending facility – the COVID-19 Corporate Financing Facility (CCFF). The CCFF will fund the purchase of “commercial paper” (i.e. unsecured, short-term debt securities) issued by eligible companies.
The CCFF will initially be open for a period of 12 months. However, the government has already explicitly acknowledged that the scheme will be extended if required.
Key terms of the scheme include:
- the maturity of the commercial paper issued must be between one week and twelve months
- the minimum size of an individual security that the Bank will purchase is £1 million nominal
- the Bank will purchase the commercial paper on market standard pricing terms available prior to the Covid-19 emergency
- commercial paper issued under the scheme cannot have any non-standard features (for example, extendibility or subordination)
- where the issuing entity is not the primary entity within a group (for example, a finance entity or local subsidiary of a larger international group), the primary entity may be required to give a parent guarantee
- if successful, the issuer will be required to agree to the CCFF terms and conditions which include warranties and undertakings.
Who is eligible?
In order to be eligible, businesses must:
- not be a bank, building society, insurance company or engaged in the financial sector that is regulated by the Bank of England or the Financial Conduct Authority
- make a “material contribution” to the UK economy
- be able to demonstrate they were in sound financial health prior to the COVID-19 emergency.
Businesses should also consider carefully the terms of any existing facilities in place which may place restrictions on their ability to participate in the scheme.
There is no requirement for a business to have issued commercial paper prior to participating in the CCFF.
What is a material contribution to the UK economy?
The material contribution test will be applied on a case by case basis; no fixed criteria have been established. However, the Bank of England have specified that UK-incorporated companies with significant employment in the UK, or with their headquarters in the UK, will likely meet this requirement. In addition, the Bank will also consider whether a company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
Importantly, UK-incorporated companies with foreign-incorporated parents and with a genuine business in the UK may participate in the scheme.
How does a business demonstrate ‘sound financial health’?
First and foremost, the Bank of England guidance suggests that qualifying companies will be those “that had a short or long-term rating of investment grade, as at 1 March 2020, or equivalent.”
The Bank of England will accept issuers with the following credit ratings (from at least one of S&P, Moody’s, Fitch or DBRS Morningstar) as at 1 March 2020:
- short-term credit rating of at least A-3 / P-3 / F-3 / R-3; or
- long-term credit rating of at least BBB- / Baa3 / BBB-.
Un-rated businesses should speak with their bank to make an initial assessment of their credit quality. If the bank’s advice is that they consider a business to have had a creditworthiness equivalent to investment grade as at 1 March 2020, then that business should contact the Bank of England directly to discuss eligibility.
Another route to evidencing credit status is for businesses (or their banks) to contact a credit rating agency directly to request an assessment of credit quality in a form that can be shared with the Bank of England and HM Treasury.
How to apply to participate in the scheme
In order to assess eligibility for the scheme, businesses should first contact their bank.
UK Finance maintains a list of the designated CCFF contacts at most major banks, available at: https://www.ukfinance.org.uk/covid-19-corporate-financing-facilities
Further information on the CCFF is available on the Bank of England’s website at: https://www.bankofengland.co.uk/news/2020/march/the-covid-corporate-financing-facility
What are the options for larger businesses who are not investment grade?
Companies with revenues of less than £45 million may apply for government-backed loans of up to £5 million under the Coronavirus Business Interruption Loan Scheme (CBILS) – details of which can be found here.
The government has not currently put in place any additional financial support for businesses who are too large to apply for support under the CBILS but who are not considered investment grade. The Chancellor has already confirmed that he will be making a further announcement this week to ensure that larger and medium sized companies can also access the credit they need.
We will continue to monitor the government’s announcements and will provide an update on the measures to be introduced to fill the gulf between the CCFF and the CBILS as further information becomes available.