UK Government – ‘£330 billion of Guarantees’

In response to the coronavirus pandemic, the UK government announced “£330 billion of guarantees,” which is divided into two schemes: the Covid Corporate Financing Facility and the Coronavirus Business Interruption Loan Scheme.

Covid Corporate Financing Facility

The facility is the Bank of England purchasing commercial paper issued by large companies to eligible financial institutions.

It is available to companies with the following characteristics, among others:

• An investment grade credit rating.
• 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 Bank of England 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.
• A sterling-denominated commercial paper programme (tradeable in Euroclear and Clearstream).
• It is not a financial institution or a leveraged investment vehicle.

The commercial paper is issued to an eligible financial institution, which then sells the commercial paper to the Bank of England. The minimum issue is £1 million. Maturity is one week to 12 months.

Coronavirus Business Interruption Loan Scheme

The scheme supports SMEs’ access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years. The UK government provides an 80% guarantee.

It is available to borrowers with the following characteristics, among others:

• Its business is UK-based, with turnover of no more than £45 million per year.
• Its business must generate more than 50% of its turnover from trading activity
• It is not a financial institution, insurer or in the public sector.
• The lender considers that the borrower (were it not for the current pandemic) is viable, and the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
• The borrower can grant first ranking security over its assets to the lender (and other security can be released). This does not apply to security over primary residential property.

In practice, this likely means that the borrower needs an existing banking relationship with one of the eligible lenders for this scheme (see the British Business Bank website).

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Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Bruce Johnston
Paul Denham