This memorandum is up-to-date as at 18:00 (GMT) on Friday 20th March 2020. This does not constitute an exhaustive list of measures proposed by the UK Government. The public guidance is being continually updated by the UK Government, HM Treasury and the Bank of England which is being closely monitored.
1.1.On 20 March 2020 the Chancellor, Rishi Sunak, announced sweeping financial measures in addition to those announced to the House of Commons on 17 March 2020 aimed at helping businesses combat the economic shock caused by the COVID-19 epidemic.
1.2.Though by no means an exhaustive list of the newly available measures to assist business and workers, the following is an outline of the key measures:
1.2.1.the government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) for SME’s via participating lenders;
1.2.2.the joint HM Treasury and Bank of England Covid-19 Corporate Financing Facility (“CCFF”) to support liquidity in larger businesses through quick access to low cost, commercial paper;
1.2.3.the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers furloughed but retained on payroll; and
1.2.4.deferment of VAT payments for the next quarter.
1.3.Funding under the CBILS and CCFF schemes is scheduled to be available by Monday 23 March 2020.
1.4.Further practical details on how to access funding under either scheme and final documentation and pricing schedules are expected on Monday 23 March 2020.
1.5.Timing in respect of the CJRS is less clear with the expectation that the first grants under the scheme will be paid “within weeks” and to be fully operational by the end of April.
2.1.1.The aim of the scheme is to provide liquidity to larger businesses by the direct purchase by the Bank of England (“BoE”) on behalf of HM Treasury of their commercial paper (“CP). The updated press release from the BoE can be seen here along with a letter from the Chancellor to the Governor of the BoE and a letter from the Governor of the BoE to the Chancellor confirming the same.
2.1.2.The intention is that 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.
2.1.3.The scheme is currently expected to operate for at least the next 12 months, with the BoE committing to six months’ notice of any withdrawal.
2.1.4.Financing under the CCFF will be obtained via email application to the BoE at email@example.com. The application form has not yet been made available and is expected in final form on launch of the scheme on Monday 23 March 2020.
2.2.Eligibility of Issuer
2.2.1.The CCFF will purchase CP on the primary market from businesses making a material contribution to the UK economy and the secondary market from eligible institutions.
2.2.2.The concept of material contribution to the UK economy has not been defined to date but the BoE has indicated the below factors as being indicative of a business reaching this threshold, with decisions to be taken on by the BoE’s risk management staff:
188.8.131.52.UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK;
184.108.40.206.companies with significant employment in the UK or with their headquarters in the UK; and
220.127.116.11.consideration will be given 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.
2.2.3. A business wishing to obtain funding from the CCFF need not have issued CP previously but access to funding is to be granted on terms equivalent to those prevailing on the market prior to the COVID-19 outbreak and will only be open to companies able to demonstrate their sound financial health prior to the economic shock COVID-19 has caused.
2.2.4. The BoE will require issuers whose CP will be offered to the CCFF in the primary market to contact the BoE directly, to discuss its eligibility and to provide the necessary documentation. The Bank will require such issuers to sign a confidentiality agreement.
2.3.Eligibility of Security
2.3.1.To be eligible for the CCFF the CP must be sterling-denominated and conform to the following additional eligibility criteria:
18.104.22.168.a maturity of one week to 12 months if issued to the BoE at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility;
22.214.171.124.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 deliberately set prior to the possible impact of Covid-19 on firms’ short-term credit ratings. The BoE and HMT will consider the eligibly of issuers at the lowest rating that were on negative watch or negative outlook as at 1 March 2020;
126.96.36.199.where a short-term credit rating is not available the BoE will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the BoE can assess that the issuer is of equivalent financial strength; and
188.8.131.52.Issued directly into Euroclear and/or Clearstream.
2.3.2.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 CCFF, subject to HM Treasury approval.
2.3.3.The Bank may not approve as eligible any CP which has certain non-standard features (eg extendibility, subordination etc).
2.3.4.Securities issued by a finance subsidiary should be guaranteed by their parent company in a form acceptable to the Bank.
2.3.5.Confirmation of the CP’s eligibility for the CCFF will be provided to the counterparty submitting the request. Where the BoE has provided this confirmation before 16:00, the business’ CP will be eligible for participation in the scheme from the following business day onwards.
2.4.1. Once accepted onto the scheme, offers to sell CP under the CCFF will need to be submitted by phone to the BoE’s Sterling Dealing Desk between 10:00 am and 11:00 am.
2.4.2. The minimum amount of any CP the CCFF will purchase is £1m nominal value and the offer should be expressed in increments of £0.1m nominal value.
2.4.3.The BoE will confirm electronically or via phone if an offer has been accepted with the purchases normally settling on a T+ 2 basis.
2.5.1.No pricing schedule has been issued but the CCFF will purchase CP at a spread above a reference rate, based on the current sterling overnight index swap (OIS) curve.
2.6.1.Applications to participate as counterparties in the CCFF can be made from Monday 23 March 2020 when the application form is published on the Bank’s website.
2.6.2.The terms and conditions and operating procedures for the CCFF will also be published on the Bank’s website on Monday 23 March 2020.
2.6.3.The Bank reserves the right to reject applications without explanation.
2.6.4.Companies that do not currently issue CP but are capable of doing so, and of meeting the CCFF’s eligibility criteria, will be able to utilise the CCFF if they so choose. The Bank will discuss with potential issuers their eligibility and access to the CCFF.
3.1.1.The aim of the scheme is to alleviate any issues SME’s have accessing credit during the COVID-19 outbreak via the government guarantee of any loans issued under CBILS up to a value of £5m per borrower.
3.1.2.CBILS is intended to cover a wide range of funding, including term facilities, overdrafts, invoice finance facilities, and asset finance facilities.
3.1.3.The scheme is provided by the British Business Bank via participating lenders, a list of whom can be found here. It is worth noting however, that participating lenders may not individually cover all the forms of lending noted below.
3.1.4.The business will remain liable for the full capital sum of any loan granted under CBILS but the government will, in addition to guaranteeing the amount, pay the first 12 months’ of interest on the loan.
3.1.5.The intention is that CBILS shall support a wide range of business finance products, including:
184.108.40.206.Invoice finance facilities
220.127.116.11.Asset finance facilities
3.2.Eligibility of Borrower
3.2.1.To be eligible, the a business must meet the below criteria, though additional elements are expected to be announced:
18.104.22.168.be UK based, with turnover of no more than £41m per annum;
22.214.171.124.operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support);
126.96.36.199.be able to confirm that they have not received EU de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years; and
188.8.131.52.have a sound borrowing proposal, but insufficient security to meet the lender’s requirements.
3.2.2.Full eligibility criteria will be published shortly, however there are a number if ineligible and restricted sectors, the list of which can be found here.
3.3. Access to CBILS
3.3.1.Funding is accessed by application to participating lending institutions. The British Business Bank does not offer any specific guidance and instead notes that businesses should approach any participating lender and discuss their borrowing needs. An application should take no longer than a standard application. If the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. Where the small business has a sound borrowing proposal but insufficient security, the lender will consider the business for support via the scheme.
3.3.2.It is worth noting the following:
184.108.40.206.The CBILS guarantee is to the lender and not the business.
220.127.116.11.As with any other commercial transaction, the borrower is always 100% liable for repayment of the facility supported by CBILS
- CJRS Summary
4.1.1.The government will pay by grant 80% of any worker’s wages, up to a maximum of £2,500 per month, for any worker a business furloughs but retains.
4.1.2.The scheme will cover workers who were on the payroll as at 28 February 2020 and it will cover the cost of wages backdated to 1 March 2020 and will be open for an initial period of 3 months, though this will be extended as necessary.
4.1.3.No funding limit has been set on the amount of funding to be granted under the scheme.
4.2.1.All UK employers are eligible to claim the grants in respect of retained but furloughed workers.
4.3.Access to CJRS
4.3.1.Employers will need to designate individual workers that they would otherwise have let go as “furloughed workers” and notify HMRC of this change via an online portal to be set up.
4.3.2.HMRC will reimburse the employer for 80% of the wages of any furloughed worker up to a monthly maximum of £2,500 per worker. HMRC has not yet set up a payments system to facilitate these reimbursements but is working on doing so.
4.3.3.Employers should keep in mind that changing a worker’s status to that of a “furloughed worker” will be subject to existing employment law and the individual contract in place with the worker in question.
5.Deferral of VAT Payments
5.1.1.No VAT payments will be payable by businesses from 20 March 2020 to 30 June 2020.
5.1.2.Following 30 June 2020 VAT payments will be payable as normal and businesses will then have until 5 April 2021, the end of the 2020-21 tax year, to pay any liabilities that accrued during the deferral period. Note, it is expected that is a deferment of an obligation to make VAT payments, not a waiver of any such obligation.
5.2.1.All UK businesses are eligible.
5.3.Access to the Scheme
5.3.1.Access to the deferral is automatic; businesses simply need not make any VAT payments to HMRC that would ordinarily have been required during this period.
5.3.2. HMRC will continue to pay any VAT refunds and reclaims as normal.
The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation. Information contained in this article may be incomplete and is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.
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