The severity of the economic downturn caused by COVID-19 is evident in the figures published that show the volume of lending to all sizes of businesses.
In the UK, the biggest financing pot is the Covid Corporate Financing Facility (CCFF). This is designed to provide funding to businesses by purchasing commercial paper (CP) of up to one-year maturity, issued by firms that make a material contribution to the UK economy. The aim of the CCFF is to help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cash flows.
According to the Bank of England website, as of 3 June, 152 businesses had been approved for CCFF issuance, while the nominal sum of CCFF drawing capacity of businesses approved for CCFF issuance stood at £67.7bn. The BoE has also started publishing on its website the names of businesses with outstanding CP held by the CCFF and the nominal value of that CP. At the low end there are a number of firms with £30m outstanding, all the way up to German-headquartered chemicals firm BASF SE, which has a nominal £1bn of CP held by the CCFF. The list of firms with outstanding CP in the CCFF is updated every Thursday by the Bank of England. The figures and firms make for a fascinating read, and anyone can download last Thursday's data.
The CCFF offers financing on terms comparable to those prevailing in markets in the period before the Covid-19 economic shock, and will be open to firms that can demonstrate they were in sound financial health prior to the shock. The facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the COVID-19 shock. Businesses do not need to have previously issued commercial paper in order to participate.
In a May announcement, the Bank of England also published a couple of new terms for the CCFF. First, all businesses that wish to draw from the CCFF for a term extending beyond 19 May 2021 will be expected to provide a letter addressed to HM Treasury that commits to showing restraint on the payment of dividends and other capital distributions and on senior pay during the period in which their commercial paper is outstanding. Second, businesses that have drawn under the CCFF are now able to repay their drawings early if they choose to do so. This gives businesses greater flexibility to exit the facility in an orderly way where they are able to access alternative sources of funding, for example in capital markets.
Loan schemes supporting a further 830,000 businesses
Figures published by HM Treasury have revealed that lenders have provided a further £34.9bn through the three major government-backed lending programmes. £3.6bn has been granted to 85,000 businesses in the past week, with more applications expected to be approved in the coming days as the industry continues to help the UK get through these tough times.
Lenders are approving thousands of Bounce Bank Loans for small and micro businesses every day. In the five weeks since the launch of the scheme, over 780,000 businesses have successfully applied - an average of 156,000 approvals by lenders each week. £23.8bn has been provided by the industry through the BBL scheme, including £2.5bn in the past seven days.
48,000 businesses have received funding through the Coronavirus Business Interruption Loan Scheme (CBILS) so far, with lenders approving £9.6bn in total.
As of 7 June, £1.6bn has been approved to 244 larger businesses via the Coronavirus Large Business Interruption Loan Scheme (CLBILS), with 53 firms securing finance in the past week.
"The industry acknowledges the role it must play and is providing an unprecedented level of support, with £35 billion approved to 830,000 businesses through government-backed lending schemes in less than three months," said Mike Conroy, director of Commercial Finance at UK Finance. "This sits alongside the broad package of measures the industry has introduced to help businesses access the support they need, including overdraft extensions and capital repayment holidays. It’s important to remember that any lending provided under government-backed schemes is a debt not a grant, and so firms should carefully consider their ability to repay before applying."
Alder Sportswear - Devon-based water sports distributor
A Devon water sports distributor, Alder Sportswear, has secured a CBILS loan from NatWest to safeguard the business and jobs. Alder Sportswear sells a range of water sports equipment from wetsuits to surfboards and traditionally has its busiest period between the months of February and May. When lockdown began in late March, the business needed support to deliver existing orders to its customers and mitigate the impact of an anticipated fall in sales. The funding will ensure the Okehampton company can pay its suppliers and deliver goods to its customers across the UK and Europe, as well as providing a buffer for the next few months as lockdown begins to ease.
Bark Engineering - Lancashire
Bark Engineering provides steel fabrication work as well as laser cutting and steel processing. The business secured a CBILS loan through Barclays, which will not only help to support their team of 20 staff, but will also enable them to fulfil big incoming enquiries such as producing ventilator boxes to support coronavirus medical efforts, that will continue to sustain the business.
BioFuels & Oils - South Yorkshire
BioFuels & Oils supplies biofuel to power generators at NHS hospitals across the UK. The company received a six-figure funding package from HSBC. This will ensure the company can keep backup generators at hospitals fuelled with a sustainable alternative to diesel, avoiding any potential power and energy difficulties.
Starling Bank and Jaywing partner on IFRS 9 model framework for COVID-19 loans
Elsewhere, Starling Bank has partnered with Jaywing to provide support developing an IFRS 9 modelling framework for the calculation of IFRS 9 Expected Credit Losses on the CBILS portfolio.
As mentioned, CBILS aims to provide government-backed loans to support small businesses with immediate liquidity needs during this difficult time. In response, commercial lenders need to adjust impairment models to account for CBILS while also continuing to satisfy the standard IFRS 9 requirement to incorporate forward-looking information in the estimation of loss.
As models built on historical data are unlikely to be able to produce meaningful projections in a continuously evolving economic landscape, it is imperative to build a pragmatic modelling solution, that combines quantitative methods with expert judgment to deliver sensible and defendable outputs.
Through working with Jaywing, Starling Bank will be able to own an impairment modelling framework that incorporates the key elements that distinguish CBILS from traditional commercial loans, and flexible enough to be able to produce updated outputs as new information becomes available. The pair plan to complete the work by the end of this month.
Like this item? Get our Weekly Update newsletter. Subscribe today