What is the Covid Corporate Financing Facility (CCFF)?

This is one of a number of temporary financial measures introduced by HM Treasury to aid businesses in response to the Coronavirus crisis.

In conjunction with the Bank of England, the government brought in this scheme to provide a quick and cost-effective way to raise working capital for large firms in the UK who need it temporarily during the current crisis. The Bank of England will purchase short-term debt (in GBP Sterling only) from eligible companies who apply for this via their bank, in the form of commercial paper (an unsecured short-term debt instrument) of up to one year in maturity.

This is intended to help ease the cashflow of companies that, but for the coronavirus pandemic, were otherwise healthy and viable with no credit problems. It is not intended to bail out companies that were already facing financial difficulties. It is also very clear that this is only for UK companies with UK employees and it is a temporary scheme, available from March 23 2020, closing on December 31 2020. Access is only available via banks that are appropriately authorised under the Financial Services and Market Act 2000 and are participants in the CCFF.

Who is eligible for this financing facility?

The scheme is only available for companies that meet the Bank of England criteria, which is quite strict. It is designed for medium to large businesses, and although size is not specifically defined, the minimum size of an individual security that the fund will purchase from an individual participant is £1 million nominal. Smaller businesses are encouraged instead to use the Coronavirus Business Interruption Loan Scheme, and larger businesses may wish to use the Coronavirus Large Business Interruption Loan Scheme instead.

What is the criteria for using the CCFF?

  • Only companies that make a “material contribution to the UK economy” can participate. Bank of England guidance suggests that this would normally be a UK incorporated company with a genuine business in the UK and significant employment in the UK, with the company headquarters in the UK. This list is not exhaustive however.
  • The company must be able to demonstrate they were in sound financial health prior to the Coronavirus situation, i.e that any impact on the firm’s balance sheet and cashflow are specifically down to the Coronavirus affect. To do this, the company will need to provide a credit rating as at 1 March 2020. If the company does not have the requisite credit rating, then alternatives are set out at the Bank of England website on the CCFF.
  • Financial companies are excluded, such as banks. Other exclusions apply.

How does this work in practice?

The amount that can be issued depends on the individual issuer’s (the company’s) limit. Those limits are decided by the Bank of England based on a range of factors, including the issuer’s credit rating. The Bank of England website provides an indicative guide to the maximum limit pre-approved by H M Treasury for issue.

It is not necessary to have issued commercial paper before. If you want to use this facility you should contact your bank who will then help you to set up the commercial paper programme to issue it to the CCFF. Applications for CCFF are dealt with as quickly as possible, and if the application is in order, commercial paper can be purchased within 48 hours.

Confidentiality

The names of issuers and securities purchased or eligible will not be made public, and the Bank of England require all companies who participate to sign a Confidentiality Agreement. More useful information can be found at the website of UK Finance which is the collective voice of the banking and finance industry see www.ukfinance.org.uk/covid-19-corporate-financing-facilities.

How will this affect my existing financing arrangements?

Any company using the CCFF will be required to warrant that the issue of the commercial paper will not conflict with or violate any agreement or instrument binding on it.

Therefore if you are considering using the CCFF, you will need to review your existing finance documentation to see whether the issue of commercial paper is permitted, or if there are any restrictions on incurring further financial indebtedness or granting guarantees and security under your existing finance arrangements that might require a waiver? If there are restrictions, it might be necessary to seek a waiver or amendment of these. It is hoped that given the unprecedented circumstances businesses are finding themselves in, that existing financiers may be supportive of the cashflow needs of the business in the short-term and provide such a waiver quickly. For more on financing in this crisis see also: [Link to: Is COVID-19 a Material Adverse Change?}

What could using the CCFF mean for me as a director?

Directors should think very carefully about the long-term effects of incurring further debt by using this facility, and only use it if there is no reasonable alternative. The maturity of the commercial paper is fairly short-term (up to 12 months) so you will need to be confident that the company can repay this on maturity, or if not, then have the capacity to refinance again later. If this is unrealistic then you could face personal liability if you use this facility knowing you can’t repay it.

Certain representations must be made to the Bank of England in the application. Inevitably breach of these may have an impact further down the line on the personal liability of the company director if these representations were not made in good faith. For full details of the representations required see https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/information-for-applicants.

In particular, representations sought are:-

  • That no insolvency events, cessation or business or state of insolvency has occurred in relation to the issuer or any guarantor.
  • That all information provided is complete and accurate, that there are relevant corporate authorisations and consents and that the application for CCFF doesn’t conflict with constitutional documents or any agreement or instrument binding upon the company or any of its assets.
  • The company must undertake to notify the Bank of England of certain events and comply with certain requests including, potential further guarantees and security needed to secure any other indebtedness.
  • Must keep confidential all information received in relation to the CCFF and the Bank of England. This confidentiality clause includes that a company won’t be able to disclose their participation in CCFF to shareholders and creditors save for information that must be disclosed by law or regulation etc. If any disclosures need to be made under law, then the Bank of England will want notification of this in advance.

To protect yourself and the company, any director wanting to make use of CCFF should ensure that the reasons for applying for CCFF is fully documented at the time, preferably having taken relevant professional advice.

While the government recently announced that wrongful trading penalties are on hold for 3 months, this is not the case for future claims of fraudulent trading, or breach of a director’s fiduciary duties or any of the standard applications used by insolvency practitioners to set aside a transaction in the future for the benefit of creditors. See: Government changes to insolvency law not as clear-cut as they seem and SME businesses and government rescue packages. Click on our link here for full details of directors duties

Whilst this could be undoubtedly a good short-term financing solution for an otherwise healthy company that is experiencing short-term cashflow problems purely as a result of the Coronavirus crisis, it is something that must be thought through very carefully by the directors of a company and all decisions fully documented.

If you require more assistance with understanding this information, our expert team at Francis Wilks & Jones can talk through the options with you, including: all available financing options; other suitable business rescue alternatives, including negotiating with creditors; advising directors and shareholders on their obligations during this crisis; reviewing existing financial documentation; and advising on confidentiality obligations. If you would like to discuss any of these, please call any member of our team at Francis Wilks & Jones to talk through your issues with one of our expert corporate team members.


Please call any member of our team for your free consultation now. Alternatively email us with your enquiry and we will call you back at a time convenient to you.

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