HM Treasury and the Bank of England Covid Corporate Financing Facility
Last updated: 2 April 2020
HM Treasury and the Bank of England launched the Covid Corporate Financing Facility (“CCFF”) on 23 March 2020 to provide additional help to firms to bridge through Covid-19 related disruption to their cash flows. See here for the updated market notice, here for the FAQs, here for the letter from the Chancellor to the Governor of the Bank of England and here for the letter from the Governor of the Bank of England to the Chancellor. The CCFF will be available to non-financial firms that make a material contribution to economic activity in the UK and that had an investment grade credit rating or equivalent on 1 March 2020.
HM Treasury and the BoE first announced the CCFF on 17 March and provided more detail on its operation in subsequent statements. The BoE published the application materials for the scheme on 23 March. The scheme will be implemented by the BoE on behalf of HM Treasury and will be funded by the issuance of additional central bank reserves. Financing will be made available by purchasing sterling denominated commercial paper of between one week to one-year maturity issued by eligible participants.
The key points to note are:
Operation of the Facility: The CCFF will purchase, at a spread over reference rates, newly issued commercial paper in the primary market via dealers and after issuance from eligible counterparties in the secondary market.
Length of the facility and timing of drawings: The intention is for the CCFF to operate for an initial period of 12 months and the BoE will provide 6 months’ notice of the withdrawal of the facility.
Eligible issuers: The CCFF is available to companies that “make a material contribution to economic activity in the UK”. In practice, firms that meet this requirement would normally be: UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK; companies with significant employment in the UK; and firms with their headquarters in the UK. The BoE will also consider 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.
Commercial paper issued by public bodies or authorities, entities governed by public law or public undertakings will not be eligible, nor will commercial paper issued by banks, building societies, insurance companies and other financial sector entities regulated by the Bank of England or the Financial Conduct Authority Commercial Paper will also not be eligible if issued by leveraged investment vehicles or from companies within groups which are predominantly active in businesses subject to financial sector regulation.
Companies do not need to have issued commercial paper prior to using the CCFF. Such companies must contact their bank or another bank that can arrange issuances of commercial paper. If the relevant company’s commercial paper is eligible for the scheme, the bank will help the company to issue it to the CCFF. UK Finance has provided a list of banks that can assist eligible companies – see here.
Eligible securities: The CCFF will purchase the sterling-denominated commercial paper of eligible issuers provided that it has certain characteristics:
- a maturity of one week to 12 months;
- a minimum short-term credit rating of A-3 / P-3 / F-3 /R3 or a long-term rating of BBB-/Baa3/BBB-/BBB low or above from at least one of Standard & Poor’s, Moody’s, Fitch and DBRS Morningstar as at 1 March 2020 (where ratings from multiple agencies are available and one is below investment grade however, the commercial paper will not be eligible);
- issued directly into Euroclear and/or Clearstream.
If firms do not have an existing credit rating, but their bank’s advice is that the firm was viewed internally as equivalent to investment grade as at 1 March 2020, then the firm should contact CCFFeligibleissuers@bankofengland.co.uk to discuss potential eligibility. The Bank will then assess whether the firm can be deemed as equivalent to having a public investment grade rating. Another potential route to evidencing credit status is for the firm or its bank to get in touch with one of the major credit rating agencies to seek an assessment of credit quality in a form that can be shared with the BoE and HM Treasury, noting that this is for the purposes of accessing the CCFF. The BoE has set out standard agency forms of credit assessment that they would view as suitable evidence of credit status for this scheme (as below) and reserve the right to make use of other products:
Moody’s Investor Services:
- Long and short term public corporate credit ratings
- (Private) ‘Indicative ratings’ at a recent point-in-time (for those approaching CRAs for the first time)
Standard & Poor’s Ratings Services:
- Long and short term public corporate credit ratings
- 'Credit Assessments’ (CAs) at a recent point-in-time (for those approaching CRAs for the first time)
- Long and short term public corporate credit ratings
- (Private) Credit opinion at a recent point-in-time (for those approaching CRAs for the first time). A form of Fitch ‘credit opinion’ incorporating a rating rationale would be preferred, if available
- Point in time private credit assessment (for those approaching CRAs for the first time
Application process: To participate, a firm will need to complete a set of standard application materials. Banks acting as dealers on behalf of applicants must also file standard documentation. Links to these materials are provided in the table below.
- If an issuer is downgraded after 1 March 2020 below the minimum credit ratings set out above, the issuer will remain eligible for primary and secondary market purchase in the facility, subject to HM Treasury approval.
- Commercial paper issued by a non-investment grade entity which is not the “primary entity” in the group (for example, a finance subsidiary) may need to be guaranteed by their parent company in a form acceptable to the Bank. Although information on the BoE’s webpage is not consistent, it is understood that the guarantee must be English law governed, market standard and accompanied by a legal opinion. A form of guarantee and a form of legal opinion have been provided by the BoE, but issuers are not obliged to use those forms.
- Eligible counterparties that wish to offer commercial paper to the BoE in the secondary market must confirm the eligibility of specific securities with the BoE prior to offering them for sale, using a specific template provided by the BoE.
Limits on the BoE’s holdings: Purchases of commercial paper in the primary market will be subject to individual issuer limits. The BoE has published an indicative guide to the maximum limit pre-approved by HM Treasury for issuers grouped by ratings, with a £1bn limit for A1/P1/F1/R1 rated issuers, a £600m limit for A2/P2/F2/R2 rated issuers and a £300m limit for A3/P3/F3/R3.
Eligible counterparties: The CCFF will purchase commercial paper that meets the eligibility criteria above:
- in the primary market from dealers acting as principal or
- from counterparties in the secondary market.
Such counterparties must be firms with appropriate licences (among others, appropriately authorised for the purposes of the Financial Services and Markets Act 2000).
Prices: The CCFF will purchase securities at a spread above a reference rate, based on the current sterling overnight index swap (OIS) curve, which have been set so that the pricing is close to the market spreads prevailing before the economic shock from Covid-19. The BoE provides different pricing arrangements for commercial paper purchased in the primary market and in the secondary market.
- Submission of offers: The minimum size of an individual security that the CCFF will purchase from an individual participant is £1 million nominal. Offers must be rounded to the nearest £0.1 million.
Offers to sell commercial paper to the CCFF should be submitted by phone to the BoE’s Sterling dealing desk (or as advised on the BoE’s wire services page) as set out in the operating procedures, between 10.00am and 11.00am. The BoE’s dealers will confirm as soon as possible by return phone, or other appropriate means, whether an offer has been accepted and will confirm the cash amount and, for primary market sales, maturity date.
- Settlement arrangements: The BoE will send by email, confirmation of each transaction on the day of purchase. The CCFF’s purchases of commercial paper will settle on a T+2 basis.
- Publicly available information: The BoE will make publicly available the total amount of commercial paper purchased each week and the total sum of commercial paper purchased, less redemptions, every Thursday at 3:00pm.
Issuers who wish to access the CCFF will need to have a programme in place to allow issuance. The Bank has indicated that it will accept commercial paper with standard features which has been issued using ICMA market standard documentation which will benefit potentially eligible issuers which already have a programme based on ICMA documentation. The BoE has provided its own forms of simplified commercial paper documentation, and has also indicated that it will consider accepting other simplified versions, based on the ICMA standard. which will facilitate the quick establishment of programmes by issuers which do not already have a programme in place. Please contact one of your usual contacts at Linklaters, or one of the Key Contacts listed on this page, if you wish to discuss alternative options for this.
Documentation to access the CCFF
All templates are live from 23 March 2020
|Companies wishing to use the CCFF must file the following documents||Banks acting as dealers on behalf of companies must file the following|
|1||Issuer Eligibility Form||CCFF Application form including Authorised Signatory Evidence
Guidance for completing the Authorised Signatory Evidence form
|2||Issuer Undertaking and Confidentiality Agreement||For a bank to be admitted into the CCFF, it will be required to file an Admission Letter agreeing to the CCFF Terms and Conditions
CCFF terms and conditions
|3||Evidence of signatory’s authority (specimen of signature, BoD minutes, PoA etc). See relevant Guidance by the BoE here.||For a bank to offer CP on the secondary market, it will be also required to complete the Issuer Eligibility Form (secondary market)|
- Some of these representations relate not only to themselves, as dealers, but also to the standing of the issuer. As such, dealers may require additional back-to-back confirmations from issuers, which go beyond those found in a typical dealer agreement for an existing ECP or EMTN programme. These representations and some of the other conditionality in the CCFF T&Cs may, from a dealer’s perspective, militate against relying on a typical (e.g. ICMA form) dealer agreement, and instead entering into a new adapted version better- tailored to the CCFF.
- The CCFF T&Cs also contain some quite broadly-framed undertakings by dealers in relation to certain of the BoE’s costs and expenses associated with the CCFF. It is not clear, in practice, the nature and extent of what might be covered by these undertakings.
For a summary of the updates to the CCFF, announced on 19 May, please click here