As we close the week which has seen the Government and the Bank of England publish details of their financial support package for business, the business community awaits the formal launch of both the Coronovirus Business Interruption Loan Scheme (CBILS) and the Covid Corporate Financing Facility (CCFF) next week.
Lenders accredited to the CBILS are preparing for the go-live next week, and the full eligibility criteria will be published then. In the meantime, the government have come under pressure to broaden the eligible sectors, with accredited lenders keen to support their existing customer base wherever possible. The scheme’s focus on SMEs, along with the CCFF scheme being directed at larger corporates, has created a gap in support for the mid-cap corporate community. Let’s see how the government respond to this need as next week unfolds.
The CCFF is generally available to larger corporates (and, in particular, those with rated debt or commercial paper (CP) funding programmes). Whilst we await the detail on Monday, it seems similar to the post-2008 Bank of England backstop CP purchasing guarantee facility, but with one key difference. Then, the CP needed to go through independent commercial paper conduits specifically identified for that purpose, with the Bank of England effectively agreeing to purchase the CP if there was no liquidity, subject to certain (quite stringent) tests being passed and no guarantee as to maintaining pricing for issuers going through difficult times. By contrast, here the Bank of England seems to indicate that it will purchase CP directly, rather than as a secondary back-up.
Accordingly, it doesn’t appear as if the purpose is to open up new avenues of funding, rather to plug (at pre-COVID crisis rates) liquidity shrinkage in the markets and to protect companies that contribute significantly to the UK economy from temporary adverse ratings and/or covenant breaches. The devil will be in the detail, but it doesn’t seem as if this is intended to cut across existing funding relationships, more to ensure ongoing liquidity for CP issuance for a limited period.
Also note that the Bank of England has specifically opened the CCFF scheme to companies that have not previously issued CP. It may, nonetheless, take longer for such companies to set up a structure and convince the Bank of England that they pass the applicable tests than for existing CP issuers.
Watch this space for more commentary as we move through next week.