HM Treasury and the Bank of England have provided further operational details and pro forma documentation in relation to the Covid Corporate Financing Facility (CCFF). This client briefing will be of interest to any large non-financial company that may wish to obtain immediate liquidity funding under the CCFF.
The CCFF is intended to provide liquidity funding to larger non-financial companies that make a material contribution to the UK economy and were in sound financial health prior to the impact of COVID-19 (the Coronavirus Business Interruption Loan Scheme is aimed at supporting smaller businesses). The CCFF was previously announced by HM Treasury and the Bank of England in a market notice issued on March 18, 2020 and supplemented by a further market notice on March 20, 2020. Further guidance was published on March 23, 2020.
Under the CCFF, the Bank of England will purchase short-term debt in the form of commercial paper (CP) of up to one year in maturity. Companies wishing to use the CCFF are advised to liaise with their bank to confirm their eligibility. Companies that are eligible will be required to complete an application form and submit this together with the required supporting documentation. The CCFF must then be accessed via a bank that is a participant in the scheme.
The Bank of England’s intention was to start processing applications for the scheme on Monday, March 30, 2020, with the first transactions taking place on Tuesday, March 31, 2020 and funding taking place on Thursday, April 2, 2020 (T+2 settlement).
Headline terms of CCFF
The headline commercial terms of the CCFF are set out below.
Companies (including their finance subsidiaries ) that:
- Make a material contribution to economic activity in the United Kingdom
- Had sound financial health, demonstrated by:
- a short-term or long-term investment grade rating as at March 1, 2020
- where a company has no existing credit rating, provide evidence of equivalent financial strength prior to March 1, 2020 by reference to either: (i) bank internal credit ratings or (ii) a public rating or private credit assessment as at point in time provided by a rating agency
Sterling denominated commercial paper with the following characteristics:
- A maturity of one week to 12 months (up to 365 days) if issued via a dealer
- Issued directly into Euroclear and/or Clearstream
||GBP Sterling only
|| £1 million nominal
|Minimum offer increment
|| £0.1 million nominal
No specified upper limit for the scheme, but for primary market purchases will be subject to individual issuer limits. These limits will reflect a range of factors, including an issuer’s credit rating.
An indicative guide to the maximum limit pre-approved by HM Treasury for issuers at different ratings is set out in the table below
(or equivalence to rating)
|Initial issuer limit
|| Up to £1bn
|| Up to £600m
|| Up to £300m
Primary market purchases of commercial paper will be at a spread above a reference rate, based on the current sterling overnight index swap (OIS) rate. The respective reference OIS rate will be determined at 09:45 on the day of the operation.
Secondary market purchases of commercial paper will be at the lower of amortised cost from the issue price and the price as given by the method used for primary market purchases as set out above. An additional small fee (currently set at 5bps and subject to review) for use of the secondary facility will be payable separately.
The respective spreads are subject to review, as at March 23, 2020 these are:
(or equivalence to rating)
|Spread to OIS
The CCFF is available from March 23, 2020 and will close to issuers on December 31, 2020. Issuers already signed up to the CCFF at that date will continue to be able to create new issuances until the closure of the CCFF.
The Bank of England intends to close the CCFF to new purchases on March 23, 2021. Securities with a maturity date beyond March 23, 2021 will be purchased on any day up to and including March 22, 2021.
||Daily purchases between 10.00 and 11.00
||Must be accessed via a bank which is appropriately authorised under the Financial Services and Markets Act 2000 (FSMA) and a participant in the CCFF.
For existing issuers of commercial paper, Euro commercial paper with standard features that is issued using ICMA market standard documentation will be acceptable.
Standard form pre-approved commercial paper documentation based on the ICMA standard has been made available by the Bank of England.
Further details are provided below.
On each Thursday at 15.00, the following information on the use of the CCFF will be published:
The names of counterparties, issuers and securities purchased or eligible will not be disclosed publicly under the CCFF (although other disclosure obligations may need to be considered)
- The total amount of commercial paper purchased that week up until the previous day, in terms of the amount paid to the sellers.
- The sum of commercial paper purchased, less redemptions, since the CCFF began in March 2020.
The following paragraphs consider certain aspects of the CCFF in more detail.
Which companies are eligible for the CCFF?
The Bank of England has advised that companies that can use the CCFF will 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
- Firms with their headquarters in the UK
The Bank of England will also consider whether the company:
- Generates significant revenues in the UK
- Serves a large number of customers in the UK
- Has a number of operating sites in the UK
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 will not be eligible. Further leveraged investment vehicles or companies within groups which are predominantly active in businesses subject to financial sector regulation will not be eligible.
Requirement for “sound financial health”
The CCFF is intended to provide liquidity for companies that were in “sound financial health” prior to the outbreak of coronavirus. The easiest way to satisfy this requirement is by reference to credit ratings.
Where available, issuers should have a short-term rating of A3/P3/F3/R3 or above, or a long-term rating of BBB-/Baa3/BBB-/BBB low or above by at least one of the major credit ratings agencies: S&P, Moody’s, Fitch or DBRS Morningstar as at March 1, 2020. Where a company has more than one rating, it will not be eligible where one or more of its ratings are below the minimum rating specified above.
Issuers that were at the lowest rating and on negative watch or negative outlook as at March 1, 2020 will be considered.
If an issuer is downgraded after March 1, 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 HMT approval.
Where a credit rating is not available, the Bank of England advises prospective participants to discuss with their bank as to whether the company was viewed internally as equivalent to investment grade as at March 1, 2020. If this is confirmed by the relevant bank, the Bank of England will then make an assessment of whether issuers can be deemed as equivalent to having a public investment grade rating. In making this determination, the Bank of England will take into account the range of banks’ internal ratings across the company’s commercial bank counterparties; a company will need to be rated consistently by its banks as investment grade in order to be deemed equivalent to having a public investment grade rating. Within this context, the Bank of England advises that it has requested and received from Credit Benchmark a credit assessment file which consolidates in aggregate form the corporate credit estimates of a number of the largest UK banks.
As a further alternative where a company does not have an existing credit rating, the Bank of England has suggested that it may be possible to obtain a public rating or a private credit assessment at a recent point in time from one of the major agencies that can be shared with the Bank of England and HM Treasury as evidence of investment grade credit quality. The Bank of England is speaking with the credit rating agencies on this subject and has provided a list of standard rating agency products that it consider suitable for these purposes.
Role of banks in CCFF
The CCFF scheme envisages banks performing two distinct roles for companies that intend to participate in the CCFF:
- Application: Prospective participants are directed to contact to their bank to confirm their eligibility and, if required, help establish a CP programme (with the assistance of lawyers). The role of the advising bank will be key where the prospective participant does not have an existing rating and may need use an alternative method, such as a banks’ internal rating, to demonstrate its financial health (see above).
- Issue and sale of commercial paper: The issuance and sale of commercial paper must be arranged through a dealer bank which is a participant in the CCFF. [Note: It is possible to appoint one than one dealer bank for a CP Programme, but only a single dealer who is a participant in the CCFF is required for an issuer to sell its commercial paper under the CCFF.]
The CCFF only provides funding in GBP Sterling, although issuers are able to swap the GBP Sterling proceeds into other currencies.
Eligible securities for existing issuers of commercial paper
If a company has an existing CP programme, it should be possible to use that existing programme to issue eligible securities for the CCFF. The most notable requirements for those issuers intending to use existing an programme are:
- The programme documentation should ideally be substantially in the form of the ICMA recommended template (although it is appears that there is scope for material deviation from the ICMA template documents).
- The commercial paper is not subordinated.
- The commercial paper does not contain non-standard features such as extendibility.
- The commercial paper directly issued into Clearstream and/or Euroclear.
If the existing CP programme satisfies all applicable eligibility criteria and this has been confirmed with the assisting bank, the relevant issuer can apply by submitting an application form and supporting documents (see How to Participate below).
Eligible securities for companies that do not have an existing CP programme
Where there is no existing programme, eligible securities will need to be issued, either under a new CP programme or a standalone issuance. In either case, the key determinants of how quickly commercial paper can be issued are likely to be the appointment of parties (in particular, a dealer and paying agent), agreement of the legal documentation and delivery of condition precedent documents.
In terms of documentation:
- It should not be necessary to prepare a formal prospectus, listing document or information memorandum (on the basis that there is no requirement for the commercial paper to be listed and the Bank of England does not require the preparation of an information memorandum).
- The Bank of England has confirmed that it will accept commercial paper issued on ICMA standard templates and has provided approved simplified versions of the commercial paper documentation based on the ICMA standard templates (which the Bank of England has advised should be used wherever possible). ICMA has also made generally available the Euro commercial paper materials from the ICMA Primary Market Handbook (which previously had been made available to ICMA members only).
Unless the company intends to be a regular issuer of commercial paper, a standalone programme based on the Bank of England approved standard documents will be the most straight forward option for prospective new issuers of commercial paper.
In addition to the CCFF application documents discussed below (see How to participate below), the condition precedent documents to be delivered for an issuance of commercial paper would typically include:
- Constitutional documents of the issuer (and guarantor if relevant)
- Corporate authorisations of the issuer (and guarantor if relevant)
- Specimen signatures of the issuer (and guarantor if relevant)
- Any governmental or other consents required for the issue of the securities
- Prospectus or information memorandum [Note: As noted above, the Bank of England has indicated no information memorandum or equivalent is required for the CCFF]
- Executed copies of the transaction documents (including dealer agreement, agency agreement, deed of covenant (and guarantee if relevant))
- Confirmations from the paying agent that they had received the deed of covenant and the forms of the global notes
- Legal opinions as to capacity and enforceability [Note: The Bank of England has not indicated that such legal opinions are required other than from a guarantor.]
- Process agent appointment (if relevant)
Existing finance documents
In addition to the eligibility requirements, stakeholders will need to consider the impact on any existing financing arrangements, in particular whether the issuance of commercial paper is permitted. This is important given that the Issuer will be required to represent and warrant that the issue of the commercial paper will not conflict with or violate an agreement or instrument binding on it and the Bank of England’s obligation to fund is also subject to a draw stop event where any event of default, default termination, acceleration event or termination event has occurred.
This will generally require a review of existing finance documents to determine if the issuance of commercial paper is permitted under, in particular, any restrictions on the incurring of financial indebtedness, any restrictions on granting guarantees and security by any obligor under existing financing (given the requirement to notify the Bank of England of any security or guarantees created and to offer equally and rateably such guarantees and security to the Bank of England, the knock-on impact on existing financial covenants on issuing commercial paper.
The existing contractual position may influence whether the commercial paper is issued via an existing company or a special purpose vehicle to issue the commercial paper, noting that where a special purpose vehicle is used the requirement for a primary entity guarantee may also require consent under existing financing documents and there are similar representations in the standard form guarantee to those set out above as to the authority and ability for the guarantor to give such a guarantee without these breaching or conflicting with other agreements binding on the guarantor.
To the extent consents or waivers are required there is, as yet, no mention of legislation being introduced to override any provisions in existing finance documents related to a company’s existing financial indebtedness or to shorten the period for obtaining their consent by imposing short “snooze and lose” voting periods. Will the company seek a waiver or amendment of any restrictions on incurring further debt? Will existing financiers be able to react in time or will a company access the CCFF notwithstanding such restrictions, assuming existing creditors will be supportive and/or the needs of the business should prevail? In any event, early engagement and stakeholder management will be key. Consideration will also need to be given by issuers as to whether it can give the representations and warranties as to its solvency (or where these have arisen as a result of the COVID-19 outbreak these have been disclosed to the Bank of England).
The directors of the Issuer will need consider carefully in the current circumstances whether they should incur further debt in the form of the programme. In particular, given the relatively short-term maturity of the commercial paper whether they can reasonably conclude they will be able to repay this upon its maturity or whether other arrangements will be put in place at that time to see it refinanced, repaid, settled or waived. In light of companies and group facing huge financial difficulties at the current time, the directors will need to take advice as to whether they can benefit from the programme without the risk of personal liability.
Considerations in relation to CCFF documents
Issuer Eligibility Form
The Issuer Eligibility Form requests the requests the issuer to provide certain information and/or confirmations, including:
- Confirm that there is no financial covenant breach or default continuing under any of the Group's financing arrangements, or likely to occur as a result of issuing the CP programme.
- Will the drawing of this CP programme result in the breach of any borrowing limit of the issuing entity or its group? Both issuer constitutional and contractual arrangements need to be considered.
- Confirm that the commercial paper will benefit from any guarantee or similar arrangements that have been provided by the Group for the benefit of the Issuing Entity's other creditors (again this will require an analysis if this is to be offered of existing financing arrangements but also commercial benefit considerations).
- Confirm that the commercial paper documentation is substantially in the form of the ICMA recommended template (including providing details of any material deviations).
- Confirm that commercial paper issued under the programme is not complex (i.e. it is senior, unsubordinated, and does not contain any non-standard features such as extendibility, etc.).
- Confirm that the commercial paper will benefit from any guarantee or similar arrangements that have been provided by the group for the benefit of the issuer’s other creditors.
Issuer Undertaking and Confidentiality Agreement
The Issuer Undertaking and Confidentiality Agreement contains:
- Representations that no insolvency events, cessation or business or state of insolvency having occurred in relation to the issuer and/or guarantor, the issuer has not ceased to comply with the eligibility criteria and no default or acceleration in relation to the issuer or its parent (or have only occurred and are continuing as a result of the COVID-19 outbreak and have been disclosed).
- Representations in relation to, among other things: statements and information provided being in all material respects complete and accurate, corporate authorisations, incorporation, consents, no conflict with constitutional documents or any agreement or instrument binding upon it or any of its assets, pari passu ranking of the commercial paper purchased under the CCFF with other all other unsecured obligations.
- Undertakings to notify the Bank of England of certain events and comply with certain requests including, in particular, a most favoured nation type clause requiring further guarantees and security to the extent granted to secure any other indebtedness.
- An undertaking to keep confidential all information received in relation to the CCFF and the Bank of England.
Issuer Undertaking and Confidentiality Agreement incorporates the Operating Procedures. The Operating Procedures document governs participation in the CCFF, explains the operational procedures of the CCFF and also incorporates the CCFF Terms and Conditions (as defined and discussed below).
We anticipate that in many cases, companies will wish to disclose to their shareholders and creditors that they have obtained funding under the CCFF and note that this is excluded by the confidentiality undertaking. The form of confidentiality undertaking includes a customary carve-out for information that “is required to be disclosed by law, regulation or any governmental or competent regulatory authority”. This carve-out will permit disclosure to the market where required under applicable market abuse legislation but would not permit disclosure to other parties (even where disclosure would be required as a contractual obligation). The Bank of England requires notification of the proposed form, timing, nature and purpose of any such disclosures in advance. This is a matter that will require careful consideration and on which regulatory guidance would be helpful.
Primary entity guarantee
Where securities are issued by a finance subsidiary that does not have an investment grade rating, the issuer may need to provide a guarantee from the primary entity of their group.
If a guarantee has been provided as part of the CP programme, it will need to be English law governed and on market standard terms, accompanied by a legal opinion.
If the primary entity is not incorporated in the United Kingdom, the guarantor should also provide a legal opinion on the guarantee. Both documents should follow the pro forma documents on the Bank of England’s website (see How to Participate below).
Prospective issuers should note that pro forma form of guarantee includes a representation that the guarantee does not conflict with “any agreement or instrument binding upon the Guarantor”.
CCFF Terms and Conditions
Upon being accepted, the issuer will receive an Admission Letter which incorporates the Terms And Conditions For Counterparties in the Covid Corporate Financing Facility (the CFF Terms and Conditions). The CFF Terms and Conditions largely repeat the representations made in the Issuer Undertaking and Confidentiality Agreement; the same issues already discussed in Issuer Undertaking and Confidentiality Agreement above will apply with the addition of the following:
- The “but for COVID-19” qualification in respect of the solvency and no default related representations is absent, meaning that the conditions precedent to funding may not be satisfied (although the Bank of England may choose to waive such conditions).
- There is a representation that “at the time of sale to the Bank of any asset, it will have the full and unqualified right to make such sale and that upon such sale the Bank will receive the same free and clear of any lien, claim, charge or encumbrance” which may be problematic in context of any existing floating charge security that has become fixed in the event of an insolvency.
How to participate
Eligible companies wishing to access the CCFF will need to confirm their eligibility with an appropriate bank and complete the following forms:
|Issuer Eligibility Form
Sets out administrative details in relation to the issuer and commercial paper (CP) programme.
Requests the issuer to provide certain information and confirmations.
See Considerations - Issuer Eligibility Form above.
|Issuer Undertaking and Confidentiality Agreement
- Transaction and corporate representations to be made by the issuer of the commercial paper
- Undertakings made by the issuer of the commercial paper
- Agreement to keep terms confidential (subject to certain exceptions)
Incorporates Operating Procedures.
See Considerations - Issuer Undertaking and Confidentiality Agreement above.
|Guarantee (if required)
||Pro forma guarantee to be provided by primary entity (if required).
|Legal Opinion in relation to Guarantee (if required)
||Pro forma legal opinion to be provided by issuer legal counsel in respect of Guarantee where the primary entity is not incorporated in the United Kingdom, the guarantor should also provide a Legal Opinion on the Guarantee
The forms are available here.
In addition to the above, the following supporting documents will need to be provided with the application:
- Evidence of authority to sign on behalf of the relevant company [Note: This may include, for example, powers of attorney and/or board minutes) and documents to support specimen signatures for all signatories (such as certifications by directors). More detailed guidance on the type of evidence required can be found here].
- Full documentation for the CP programme.
- Rating agency letters in respect of the issuing entity (where such entity is rated) and the most recent rating agency reports.
- The most recent Annual Report and Accounts for both the issuing entity and the group.
- An organogram of the Issuing entity’s group, including all main holding companies and subsidiaries.
Completed documentation should be sent to CCFF-Applications@bankofengland.co.uk.
How we can help?
We can advise relation to:
- The requirements of the CCFF and the issuance of commercial paper securities that would be eligible for the CCFF.
- Negotiations with existing creditors.
- Contingency planning and duties and obligations of directors through the crisis.
- Any general liquidity or other funding requirements.
- Disclosure consequences, including compliance with listing rule requirements and MAR.
- Borrowing limits under existing contractual documentation and constitutional documents.