[co-author: Hyerin Park]
When the UK Government introduced its package of temporary measures to support businesses during the Covid-19 outbreak, its Coronavirus Business Interruption Loan Scheme (the "CBILS"), which aims to support the continued provision of finance to UK SMEs during this period of disruption, did not extend to most private equity owned businesses.
The Government has recently announced two additional measures as part of its package: the Covid Corporate Financing Facility (the "CCFF") and the Coronavirus Large Business Interruption Loan Scheme (the "CLBILS").
CCFF
The CCFF, launched by the Bank of England (the "BoE") and HM Treasury, is designed to provide short-term funding to qualifying businesses by purchasing commercial paper issued by those businesses, provided that such commercial paper complies with specified requirements. However, this scheme is unlikely to be of assistance to leveraged finance borrowers because: (1) they will generally not be eligible as leveraged investment vehicles are out of scope, and (2) the business would also need to have a short or long-term investment grade rating by S&P, Moody’s, Fitch or DBRS Morningstar as at 1 March 2020 (unrated businesses will need to acquire a rating and the BoE will look at a range of features in order to form a view.).
For more information on the eligibility criteria and a detailed FAQ page, please refer to the BoE's website.
CLBILS
On the other hand, the new CLBILS, which will launch later this month, looks much more promising for leveraged finance borrowers.
It will operate to provide a government guarantee of 80% to enable banks to make loans of up to £25 million to large businesses that were viable before the Covid-19 outbreak but now face significant cash flow difficulties and would be otherwise unable to access the finance they need.
The key characteristics of the CLBILS are set out below, by way of comparison with the CBILS (with which we assume that the reader is more familiar). The main differences are underlined.
| Key features |
CLBILS |
CBILS |
| Eligible businesses |
Businesses must:
- be UK-based in their business activity;
- have an annual turnover of £45 million – £500 million;
- have a borrowing proposal which the lender would consider viable, were it not for Covid-19, and which it believes will enable it to trade out of any short-term to medium-term difficulty.
Further details on eligibility can be found here
|
Businesses must:
- be UK-based in their business activity
- have an annual turnover of no more than £45 million;
- be able to self-certify that it has been adversely impacted by Covid-19; and
- have a borrowing proposal which the lender would consider viable, were it not for Covid-19
The British Business Bank's quick eligibility checklist for SMEs is here
|
| Terms of the facility and guarantee |
- Maximum value of facility: Up to £25 million
- Other details - to be confirmed
|
- Maximum value of facility: Up to £5 million
- Payment of interest and fees: Paid by the Government for 12 months
- Guarantee fee: Lenders will pay a small fee to access the scheme, but borrowers will not
|
| Liability for repayment of the facility |
Borrower will remain 100% liable. |
Borrower will remain 100% liable. |
| Accredited lenders |
To be confirmed - currently anticipated by the Government to be made available through a range of accredited lenders, with lenders being expected to conduct their usual credit risk checks. |
There are currently 40 accredited lenders able to offer the scheme. |
Commentary
The CBILS was recently amended to become available to all viable businesses, not just to those that are unable to secure commercial financing. The updates to the CBILS, combined with the CCFF and the addition of the CLBILS, which is designed to give lenders confidence to lend to those businesses which are impacted by Covid-19 but which fell outside of the remit of the CCFF and the CBILS, is expected to improve the accessibility of the Government's financial support package for businesses.
However, it remains to be seen whether the accessibility of the CLBILS will be hampered by the same issues that affected the CBILS before the recent changes were made, e.g. how an assessment may be made as to whether a business is otherwise "unable to secure regular commercial financing".
The Government has announced that further details of the CLBILS will be announced later this month, and it is hoped that the publication of these details will be accompanied by guidelines that provide greater clarity on these issues.
[View source.]
