UK bailout: paper vapours | Financial Times

Michelle K. Wallace

It is not just the weak who need support. Take-up of the UK’s emergency commercial paper scheme aimed at big businesses is accelerating. On Thursday, the Bank of England announced it had bought £10.7bn of short-term debt issued by 35 businesses.

In addition, 40 businesses have been given the green light to issue £28.4bn under the scheme, known as the Covid Corporate Financing Facility (CCFF). Another 101 have been approved in principle. Applicants include companies such as airline easyJet, travel food retailer SSP and recruiters Hays and PageGroup.

The amount approved is 14 times the £2.8bn that has been lent under the log-jammed small business lending scheme. It was expanded to include larger companies on Monday. Even so, uptake of the combined loan support measures looks likely to fall well short of the £330bn made available by chancellor Rishi Sunak in mid-March.

That is not because the CCFF, the biggest part of the package, is unattractive. Companies pay as little as 20 basis points over the sterling overnight index swap. But a lot of companies — more than a fifth of applicants, the BoE said last week — have been turned down. Only a small group of companies (400 at most) are eligible for the scheme. Those that make the grade are limited to issuing between £300m and £1bn, depending on credit quality.

Accessing the CCFF is straightforward for those with investment-grade ratings, though they also need to show they contribute to the economy. But only one-third of the FTSE 350 have a credit rating at all, says rating agency S&P. It — and other agencies — can be asked to do a credit quality assessment specifically for the CCFF. Another route into the scheme is via data analytics firm Credit Benchmark, which collects UK banks’ assessments of corporate creditworthiness and provides the BoE with an aggregate figure.

Many of those eligible will not need to make use of the CCFF — either because they have no liquidity issues or because they can arrange commercial loans. Companies that are clearly creditworthy find that banks are open for business, says James Collis of law firm Squire Patton Boggs.

Still, the growing uptake underlines the CCFF’s appeal. Those wanting to tap it should be prepared to show they have used the funds well. Lavish executive pay and dividend payouts by supplicants will be frowned upon. Corporate social responsibility will have to be more than a buzz phrase. The perception that companies owe a debt to the public will persist even if the money is paid back in full.

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