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Articles

Covid-19 finance schemes: CLBILS limit extended to £200 million and restrictions added

19 May 2020 | 2 minute read

On 19 May 2020, in a further expansion of the Government-backed finance schemes, the Treasury announced that from 26 May 2020 the Coronavirus Large Business Interruption Loan Scheme ("CLBILS") will be extended to offer loans up to a maximum of £200m (up from the current £50m) based on 25% of turnover.

This is to offer large scale financial support to those businesses who are not able to access the Covid Corporate Financing Facility (CCFF). The CCFF (as we explained here) allows the Bank of England to purchase commercial paper from companies that make a material contribution to the economic activity in the UK - subject to these minimum summary requirements:

Be investment grade rated (or equivalent) as at 1 March 2020;
Not be PRA- or FCA-regulated; and
Not be a public undertaking.

Note, there is no requirement to have previously issued commercial paper but it is expected that only those familiar with doing so have been accessing this funding. That is likely to be a factor in the reason for expanding the CLBILS limits.

Most interesting is the (policy) direction of travel indicated by the restrictions/limitations on borrowers who access these funds via CCFF (for more than 12 months) or CLBILs – lasting for as long as the facilities remain outstanding.

Restrictions

Borrowers will not be permitted to make any dividend payments other than those that have already been declared;
Borrowers will not be permitted to make any share buybacks;
Borrowers will not be permitted to pay any cash bonuses, or award any pay rises to senior management (including the board) except where they were a) declared before the CLBILS loan was taken out; b) is in keeping with similar payments made in the preceding 12 months; and c) does not have a material negative impact on the borrower’s ability to repay the loan.

Further, the Bank of England will also publish a list of companies who took up CCFF – indicating a level of public scrutiny to those business the tax-payer will be supporting.

Consequences

At first glance, the restrictions seem a natural protection against profiteering from cheap State finance but the inevitable consequence will be a curtailing of business freedoms where, previously, businesses would not let the structure of long term borrowing impede these. As a result, it may put off some businesses and/or require a rethink of how soon they would intend to repay the facilities to be released from the restrictions.

Further, the underlying State aid framework supporting both CLBILS and CBILS requires lenders to assess whether or not the intended recipients of the loans were "undertakings in difficulty" at 31 December 2019. For companies whose accumulated losses exceed 50% of their issued share capital, further consideration should be given to whether you will be able to obtain access to the schemes.

For some groups of companies that have profitable and loss making entities there may need to be a mixture of CBILS/CLBILS funding as well as other funding support via banks, shareholders or other investors for those entities that don't qualify for the government supported schemes.

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