Covid-19 – financial support for businesses from Government and the Bank of England

Although the full magnitude of the economic shock from Covid-19 is uncertain, activity will continue to weaken materially in the UK over the coming months. Temporary, but significant, disruptions to supply chains and weaker activity will challenge cashflow and increase demand for working capital from companies. The Covid Corporate Financing

Facility (CCFF) will provide funding to businesses by purchasing commercial paper of up to one- year maturity, issued by firms making a material contribution to the UK economy. It will help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows. The facility will offer financing on

terms comparable to those prevailing in markets in the period before the Covid-19 economic shock, and open to firms that can demonstrate they were in sound financial health prior to the shock. The facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the Covid-19 shock. Businesses do not need to have previously issued commercial paper in order to participate. The scheme will operate for at

least 12 months and for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK economy. The Bank will implement the facility on behalf of HM Treasury.

ELIGIBLE ISSUERS The Fund will purchase CP issued by companies (including their finance subsidiaries) that make a material contribution to economic activity in the UK. UK incorporated companies, including those with foreign- incorporated parents and with a genuine business in the UK, will normally be regarded as meeting

48 business network April 2020

this requirement. Companies with significant employment in the UK or with headquarters in the UK will normally be regarded as meeting this requirement. Considerations will be made as to whether the 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.

‘The facility will offer financing on terms comparable to those prevailing in markets in the period before the Covid-19 economic shock’

CP issued by non-bank financial

companies will in principle be eligible, subject to the Bank being satisfied that the issuer makes a material contribution to corporate financing in the UK. CP issued by leveraged investment vehicles, or from companies within groups that are predominantly banks, investment banks or building societies, will not be eligible. Companies that do not currently

issue CP but are capable of doing so will in principle be eligible to utilise the CP Facility, provided they meet the eligible securities criteria. The Bank will require issuers

whose CP will be offered to the Fund in the primary market to contact the Bank directly at

ELIGIBLE SECURITIES The Fund will be operated by the Bank under an agreement with HM Treasury. The Fund will purchase the sterling-denominated CP of eligible issuers, with the following characteristics: • A maturity of one week to 12 months if issued to the Bank at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility.

• Where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch, as at 1 March 2020. This reference point is set prior to the possible impact of Covid-19 on firms’ short-term credit ratings. Issuers with split ratings where one or more rating is below the minimum are not eligible. The Bank and HMT will consider the eligibly of issuers at the lowest rating that were on negative watch or negative outlook as at 1 March.

• Where a short-term credit rating is not available the Bank will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the Bank can assess that the issuer is of equivalent financial strength.

• Issued directly into Euroclear and/or Clearstream.

If an issuer is downgraded after 1 March 2020 below the minimum credit ratings, the issuer will remain eligible for primary and secondary market purchase in the Facility, subject to HM Treasury approval. The Bank may not approve as

eligible any CP which has certain non-standard features. Securities issued by a finance subsidiary should be guaranteed by their parent company in a form acceptable to the Bank. Eligible counterparties that wish

to offer CP to the Bank in the secondary market must confirm eligibility of specific securities prior to offering them for sale. Eligible counterparties should contact the Bank at When the Bank confirms

eligibility before 4pm, securities will be eligible for sale to the Fund from the following business day. The Bank, the Fund and HM

Treasury reserves the right to deem

any security ineligible for any reason, and to deem ineligible securities it has previously purchased and vice versa.

LIMITS ON THE BANK’S HOLDINGS Purchases of CP in the primary markets may be limited by issuer. Any such limits applying to individual issuers will be made available, on request, to the issuer only. Where two or more issuers are part of the same Group, an aggregate limit may be applied.

ELIGIBLE COUNTERPARTIES The Fund will purchase CP that meets the eligible securities criteria and that has been in the primary market from dealers acting as principal and will also purchase CP in the secondary market from eligible institutions. Counterparties must, inter alia, be appropriately authorised for the purposes of the Financial Services and Markets Act 2000 (FSMA).

PRICES The Fund will purchase securities at a spread above a reference rate, based on the current sterling overnight index swap (OIS) curve. Spreads will be set such that pricing is close to the market spreads prevailing before the economic shock from Covid-19. The Bank will keep its pricing under review. CP purchased in the primary

market will be discounted using a rate based on the maturity- matched overnight index swap (OIS) rate, as determined by the Bank on day of purchase. Money

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