The COVID-19 Corporate Financing Facility – an opportunity for non-financial corporates 

On 17 March 2020, HM Treasury (HMT) and the Bank of England (BoE) announced a COVID-19 Corporate Financing Facility (CCFF), open for drawings from 23 March 2020. 
The CCFF is designed to provide bridging support to companies which are fundamentally strong (based on pre COVID-19 metrics) but have been affected by a short-term funding squeeze, and thus may struggle in current markets to obtain access to finance for their working capital and liquidity needs. The BoE expressed its intention to help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows. 

The CCFF is potentially unlimited in size and the UK government will indemnify the BoE's operations under the CCFF. By targeting those making a material contribution to the UK economy, the CCFF aims to free up commercial bank balance sheet lending for small and medium sized enterprises. 

The CCFF will provide funding to businesses by purchasing short term unsecured debt securities known as "commercial paper" (CP) and will be available to current CP issuers as well as companies who do not currently issue CP. The CCFF will offer financing on terms comparable to those prevailing in markets in the period before the COVID-19 economic shock. The names of issuers and the details of securities purchased under the fund shall not be publicly disclosed. 

In this note, we have focused on eligible issuances by corporate issuers in the primary market but we note that the CCFF also allows eligible counterparties to offer CP issued by eligible issuers to the BoE for purchase in the secondary market. 

Eligible issuers 

The CCFF will purchase CP issued by companies (including their finance subsidiaries) that make a material contribution to economic activity in the UK. The determination as to eligibility is at the sole discretion of the BoE.

1. Eligible issuers must be non-financial companies. Companies that will be considered include those: 

• incorporated in the UK, including those with foreign-incorporated parents and with a genuine business in the UK;
• generating significant revenues in the UK;
• serving a large number of customers in the UK; or 
• with significant employment in the UK;
• with a number of operating sites in the UK. 
• with their headquarters in the UK;

CP issued by (i) banks, building societies, insurance companies and other regulated financial sector entities and (ii) leveraged investment vehicles or companies within groups which are predominantly active in businesses subject to financial sector regulation will not be eligible. 

2. The CCFF is available to companies that can demonstrate they were in "sound financial health" prior to the impact of COVID-19 on firm's credit. This includes: 

• where a credit rating is available, the company had a minimum short-term or long term credit rating of investment grade as at 1 March 2020, or equivalent. 
• where no credit rating is available, the company should contact their bank for advice. If the bank's internal assessment is that the company's credit rating was equivalent to investment grade as at 1 March 2020, it will liaise with the BoE accordingly. The BoE will then make an assessment as to deemed equivalence. Alternatively, the BoE recommends the company or its bank contact one of the major credit ratings agencies noting that the company intends to apply for the CCFF. The BoE is also speaking to the largest credit agencies in relation to facilitating the availability of evidence of credit status for companies seeking to use the CCFF.

The BoE will purchase securities at a spread (based on the issuer's credit rating (set out here)) above the current sterling overnight index swap (OIS) rate. 

3. There is no requirement for a company to have issued CP previously. 

If a company believes they might be eligible for funding under the CCFF, they should contact their bank. Alternatively, please reach out to your Dentons contact or the contacts below and we will put you in touch with a bank ready to assist. The bank will be able to reach out to the BoE directly to discuss the company's eligibility. 

Securities eligible for purchase 

The CCFF 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 BoE at issue via a dealer. The CCFF is currently expected to be operative for at least the next 12 months, and drawings can be rolled during such time. However, it will close to new issuers on 31 December 2020. 
• Issued directly into Euroclear and/or Clearstream. 
• Where available, a credit rating of A-3 / P-3 / F-3 / R3 from at least one of Standard & Poor’s, Moody’s, Fitch and DBRS Morningstar as at 1 March 2020. 
• Standard CP features. The BoE may not approve as eligible any CP which has certain non-standard features (for example, extendibility, subordination).
• Securities issued by a subsidiary should be guaranteed by their parent company in a form acceptable to the BoE. The BoE's proposed form of acceptable guarantee can be found here. 
• £1million minimum nominal amount for each security (with further offer increments of £0.1million nominal). 

Issuers will also need to consider the terms of their current financing arrangements before applying for access to the CCFF e.g. any existing bond or loan covenants relating to permitted levels of debt. 

The initial BoE Notice is available here. Further details of the CCFF, including application forms, terms and conditions, and operating procedures are available on the BoE's website. Additionally, in the interest of supporting the overall market, the International Capital Markets Association (ICMA) have made their market standard form CP documentation (on which CCFF CP issuance may be based).

CP provides a key alternative to short-term finance without the requirement of collateral. We have extensive experience advising corporate issuers in international debt capital markets, across a broad range of jurisdictions and products, including CP and longer-term debt capital market products.