Covid Corporate Financing Facility (“CCFF”): supporting liquidity in larger firms

26 Mar 2020

The Bank of England’s scheme to help larger companies to bridge COVID-19 related cash flow disruption is now open for business.  Jonathan Compton looks at the headlines and some of the detail of this new funding facility for firms across a range of sectors to enable them to pay wages and suppliers.

The guts of the scheme permits financing of companies to support them through the current crisis based on the issue of ‘commercial paper’, ie. an unsecured, short-term debt instrument issued by corporate bodies.

The headlines

  • CCFF is open to larger commercial bodies making a major contribution to UK PLC. 
  • Those corporates issuing can take part notwithstanding they have not issued commercial paper before. 
  • The commercial paper needs to fulfil certain criteria:
    • It must be issued directly into clearing houses (Clearstream and/or Euroclear).
    • And be denominated in GBP.
    • Maturity dates between seven days and one calendar year
    • Eligibility will be based on the firm’s previous credit rating and Issuers will need to have a minimum short term credit rating of A-3 / P-3 / F-3 from at least one of the major agencies such as S&P, Fitch or Moody’s  ie. investment grade (or minimum BBB).
    • Have standard features. No extendibility or ranking (subordination).
  • The scheme is confidential. 
  • Pricing: standard spread in relation to a reference rate and set against the credit rating of the company concerned.
  • There is a £1million minimum loan amount. 

A little more focus

The scheme works by purchasing commercial paper from larger UK registered corporates.

Participants must be in ‘sound financial health’ and credit worthy – as detailed above.

There is no requirement for participants to have issued commercial paper before. Applications will be vetted by the Bank of England’s risk management people.

There is no reason other than practicality why the scheme could not be extended to smaller or non-investment grade companies, although there is a limit to how many applications Bank of England staff can undertake.  Smaller corporates have the opportunity to apply for the alternative Coronavirus Business Interruption Loan Scheme (“CBILS”) available through more than 40 accredited bank lenders.  See our blog on CBILS here.

Companies at the lower credit ratings or on negatives (either watch or outlook) or those that don’t have an existing rating from one of the major agencies should speak to their own bank in the first instance.  If that bank’s advice is that the company was viewed internally as equivalent to investment grade at 1 March 2020, then they should contact the Bank of England to discuss eligibility.

The scheme will be open for an initial period of 12 months, and the Bank of England will give a six-month withdrawal notice.  However, we expect that the scheme will, in time, be extended, should events warrant.

It should always be remembered that this is a loan facility, it is not a grant, and businesses must be able to afford to repay what is essentially additional debt.  Issuing commercial paper also involves arranger fees, which might be prohibitive for some businesses.

However, as one of a raft of measures to support UK companies through the pandemic and its effects on the global economy, the scheme is a welcome one.

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