Covid-19 coronavirus update: Bank of England Covid Corporate Financing Facility (CCFF)
19 May 2020
The CCFF is one of the major support measures announced by HM Treasury. The others include the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme.
CCFF is a committed Commercial Paper purchase facility provided by the Bank of England.
It is available to companies (both UK and foreign) making a material contribution to the UK economy, and which were at least investment grade as at 1 March 2020.
Companies operating in the financial sector are not eligible.
The CP programme can be set up on simplified documents published by the Bank of England and unlisted.
The CCFF will close to new issuers from 31 December 2020.
The discount at which the CP will be purchased will be a spread over OIS, with the spread driven by the issuer short-term ratings.
You will need to appoint a bank to sell the CP to the Bank of England on your behalf.
The names of users of CCFF, and the amounts issued, will be published by the Bank of England every week, beginning 4 June 2020.
If you issue CP under the CCFF with a maturity extending beyond 19 May 2021, you will need to provide a letter to HM Treasury that commits to a suspension of dividends and buybacks and pay rises and bonuses for senior management. This letter may be published if HMT believes that you have not complied.
Who can access the CCFF?
The CCFF is not available to all companies. There are a number of criteria to be satisfied:
(a) Material contribution to the UK economy
This is tested by looking at the UK nexus for your business, for instance:
- A UK-owned and UK-incorporated company
- A foreign-owned and UK-incorporated company with a genuine business in the UK
- A company with significant employment in the UK
- A company with its headquarters in the UK
- A company that 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.
Housing associations which have a V1 grade for viability from the Regulator for Social Housing are eligible.
(b) Sound financial health prior to Covid-19
To satisfy this you need to have a short- or long-term credit rating of investment grade as at 1 March 2020. This means 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.
If you do not have a credit rating there are arrangements for shadow credit assessment by the bank through which you access the CCFF.
A credit rating downgrade occurring after 1 March 2020 will not automatically exclude you from participation, but this is subject to HM Treasury approval.
(c) Excluded entities
The following categories of entities are excluded:
- Banks, building societies, insurance companies and other financial sector entities regulated by the Bank of England or the Financial Conduct Authority;
- Public bodies, public authorities and other entities governed by public law;
- Leveraged investment vehicles
- Companies within groups which predominantly active in businesses subject to financial sector regulation.
How do I access the CCFF?
The CCFF is operated by the Bank of England acting as a committed purchaser of Commercial Paper (CP) issued by eligible corporates. You will need to sign a confidentiality agreement with the Bank of England.
From 4 June 2020, the names of CCFF issuers, and the amounts outstanding, will be published weekly by the Bank of England.
If you do not already have a Commercial Paper programme, you will need to set one up. The Bank of England has published standard CP documentation, based on the ICMA standard form documents. The Bank of England will consider other forms of documentation as well.
Do remember to check any limitations on the incurrence of financial indebtedness in your existing facilities.
Do I need to appoint a bank to arrange my access to the CCFF?
Yes. You will need a bank to deal with the Bank of England on your behalf.
You can find a list of eligible banks, and CCFF-specific contact details, on the UK Finance website.
Key features of CCFF Commercial Paper (primary market)
- Unlisted securities
- Maximum maturity of 364 days
- Issued at a discount – not interest-bearing
- Not listed or admitted to trading on any exchange.
- Short-form disclosure of the issuer's business
- Sterling denominated only
- Minimum size for a purchase is GBP1m, and thereafter integral multiples of GBP100,000
- Discount will be priced as a spread over Sterling OIS. The spreads are driven by short-term ratings, currently as follows:
Short term Rating
Spread over OIS
Does issuance under CCFF attract limitations on dividends or executive pay?
If you issue CP under CCFF which has a maturity beyond 19 May 2021, you will need to provide a letter to HM Treasury which "commits to showing restraint on the payment of dividends and other capital distributions and on senior pay" during the period in which that CP is outstanding.
The Bank of England has published a draft form of commitment letter which clarifies that, from the date of issuance of any CP with a maturity extending beyond 19 May 2021 and for so long as that CP is outstanding there must be:
- a suspension of all shareholder distributions and buybacks; and
- no pay rises or cash bonuses for senior management, including the board and company management
These commitments are intended to create incentives for, and promote the ability of, businesses to repay their borrowings from the CCFF where they mature after the facility is expected to close.
HM Treasury may publish that letter if it becomes aware that these commitments have not been met.
Other features of CCFF
It is also possible to access the CCFF through secondary market sales to the Bank of England. For this there is an additional fee of 5 bps and the purchase price will be the lower of the amortised cost from the actual issue price and the price derived if the CP had been a primary market issuance.
The Bank of England has indicated that the last date on which CP purchases will be made under the CCFF will be 22 March 2021.
The CCFF will be closed to new issuers from 31 December 2020.
CP purchases occur on each weekday between 10 and 11 a.m.
The Bank of England will set individual issuer limits, but will be capped at £1bn for A1-rated issuers; GBP600m for A2-rated issuers and GBP300m for A3-rated issuers. Limits for housing associations that are eligible are capped at GBP300m.
It is possible to apply for CCFF limits in excess of these ratings-based amounts. If granted, you will need to provide a commitment letter with respect to dividends and senior pay as referred to at Paragraph 6 above.
It is possible to repurchase (i.e. repay) your CP early, subject to a fee. In re-sale transactions the CP will be sold at the higher of the amortised cost from the original purchase price and the current price derived if the CP was being newly issued as a primary market issuance. A fee of 5 basis points is charged and deducted from the yield in determining the re-sale price. For repurchases made before 30 June 2020 no fee is applicable.
You may need to provide parent guarantees.