This week the Covid-19 Corporate Financing Facility (CCFF) operated by the Bank of England opened for applications. This article sets out an overview of the key terms of CCFF. In a nutshell, the CCFF is commercial paper purchase programme designed for non-financial corporates to support them through the turbulence resulting from Covid-19.
We are all navigating unchartered waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.
The CCFF provides funding to businesses by purchasing commercial paper (CP) issued by UK-incorporated companies that make a "material contribution to the UK economy". Firms wishing to participate must show that they were in sound financial health before the shock of Covid-19.
However, they need not have issued CP before to participate. The Bank of England's risk management staff make the issuer eligibility decisions.
The CP must meet certain eligibility criteria for purchase under the CCFF. In particular, it must be denominated in sterling and have maturity of at least one week up to a maximum of 12 months (drawings can be 'rolled' whilst the CCFF is open). Operating companies and treasury/finance companies can participate (subject to customary guarantees).
In principle, the CCFF could be extended to corporates other than those that are strictly investment grade on a publically rated basis. Indeed, for now, if a company does not have an existing credit rating, it should speak to its bank in the first instance. If the bank internally views the company as equivalent to investment grade (as at 1 March 2020), the company could be considered for CCFF.
In due course, the CCFF could be extended further and we suggest it be considered a 'watching brief'.
Furthermore, where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor's or Fitch as at 1 March 2020 is required. This reference date is used as it prior to possible impact of Covid-19 on credit ratings. Companies at the lowest rating that were on negative watch or negative outlook as at 1 March 2020 will be considered for the CCFF but firms with split ratings where one or more rating is below the minimum will not.
Where a short-term rating is not available, the Bank of England will consider whether a long-term credit rating can be used or whether the Bank of England itself can assess that the prospective issuer is of equivalent strength.
The CCFF will purchase CP at a spread above a reference rate, based on the current sterling overnight index swap curve. It is intended that this pricing will be close to market spreads before the market impact of Covid-19.
Where eligibility of CP is confirmed before 4pm, the CP may be purchased under the CCFF the following business day. The minimum size of an individual security purchased under the CCFF is £1 million (with the offer amount expressed in increments of £0.1 million nominal. Settlement is on a T+2 basis.
The Bank of England has confirmed that it will accept commercial paper issued on ICMA Euro Commercial Paper templates. ICMA is making these available to non-members from their Primary Market Handbook and are available here (under Market practice).
At least initially, the CCFF will be open for 12 months and the Bank of England will give 6 months' notice of withdrawal.
Banks, building societies, insurance companies and, more generally, firms regulated by the Prudential Regulation Authority or the Financial Conduct Authority will not be eligible to participate in the CCFF.
However, some of those firms may have other money markets access (direct or indirect) unavailable to corporates, for example, through eligibility to participate in the Sterling Monetary Framework and thus have access to the Term Funding Scheme for SMEs and the market operations facilities: the Indexed Long-Term Repo, Discount Window Facility or Contingent Term Repo Facility (if activated).
If you would like assistance on understanding how the CCFF would work for you (or indeed alternative financing arrangements) including documentation and steps, do get in touch with a member of the team below.
Guy Usher | Partner
Dougall Molson | Partner
Oliver Abel-Smith | Partner
Simon Lafferty | Senior Associate
We are all navigating unchartered waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.
Speed read
- CCFF open to corporates that make a material contribution to economic activity in the UK
- Issuers can participate even if they have not issued CP before
- The CP must be issued directly in Euroclear and/or Clearstream and:
- be sterling-denominated
- have a maturity of one week to 12 months
- have a minimum short term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor's or Fitch (broadly BBB-- in long-term ratings) as at 1 March 2020 – i.e., investment grade
- not have non-standard features, for example, subordination or extendibility
- Use of the CCFF is confidential and issuer names or CP purchased will not be publically disclosed
- Pricing: spread above a reference rate based on the current sterling overnight index swap (OIS curve) depending on the credit rating of the issuer. Primary market CP will be discounted on a rate based on the maturity-matched OIS rate as determined by the Bank of England on day of purchase.
- The minimum amount of CP from any issuer that the CCFF will purchase is £1m
A little more detail
The CCFF provides funding to businesses by purchasing commercial paper (CP) issued by UK-incorporated companies that make a "material contribution to the UK economy". Firms wishing to participate must show that they were in sound financial health before the shock of Covid-19. However, they need not have issued CP before to participate. The Bank of England's risk management staff make the issuer eligibility decisions.
The CP must meet certain eligibility criteria for purchase under the CCFF. In particular, it must be denominated in sterling and have maturity of at least one week up to a maximum of 12 months (drawings can be 'rolled' whilst the CCFF is open). Operating companies and treasury/finance companies can participate (subject to customary guarantees).
In principle, the CCFF could be extended to corporates other than those that are strictly investment grade on a publically rated basis. Indeed, for now, if a company does not have an existing credit rating, it should speak to its bank in the first instance. If the bank internally views the company as equivalent to investment grade (as at 1 March 2020), the company could be considered for CCFF.
In due course, the CCFF could be extended further and we suggest it be considered a 'watching brief'.
Furthermore, where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor's or Fitch as at 1 March 2020 is required. This reference date is used as it prior to possible impact of Covid-19 on credit ratings. Companies at the lowest rating that were on negative watch or negative outlook as at 1 March 2020 will be considered for the CCFF but firms with split ratings where one or more rating is below the minimum will not.
Where a short-term rating is not available, the Bank of England will consider whether a long-term credit rating can be used or whether the Bank of England itself can assess that the prospective issuer is of equivalent strength.
The CCFF will purchase CP at a spread above a reference rate, based on the current sterling overnight index swap curve. It is intended that this pricing will be close to market spreads before the market impact of Covid-19.
Where eligibility of CP is confirmed before 4pm, the CP may be purchased under the CCFF the following business day. The minimum size of an individual security purchased under the CCFF is £1 million (with the offer amount expressed in increments of £0.1 million nominal. Settlement is on a T+2 basis.
The Bank of England has confirmed that it will accept commercial paper issued on ICMA Euro Commercial Paper templates. ICMA is making these available to non-members from their Primary Market Handbook and are available here (under Market practice).
At least initially, the CCFF will be open for 12 months and the Bank of England will give 6 months' notice of withdrawal.
Banks, building societies, insurance companies and, more generally, firms regulated by the Prudential Regulation Authority or the Financial Conduct Authority will not be eligible to participate in the CCFF.
However, some of those firms may have other money markets access (direct or indirect) unavailable to corporates, for example, through eligibility to participate in the Sterling Monetary Framework and thus have access to the Term Funding Scheme for SMEs and the market operations facilities: the Indexed Long-Term Repo, Discount Window Facility or Contingent Term Repo Facility (if activated).
If you would like assistance on understanding how the CCFF would work for you (or indeed alternative financing arrangements) including documentation and steps, do get in touch with a member of the team below.
Guy Usher | Partner
Dougall Molson | Partner
Oliver Abel-Smith | Partner
Simon Lafferty | Senior Associate