COVID-19 update | October 2020

Background

The Policy and Technical team continues to speak with treasurers to understand what issues they are facing and in what areas the ACT can help. We are also talking with the main banks to understand how they are responding to the COVID-19 crisis. At the same time, we have held a number of conversations with HM Treasury, the Bank of England, the CBI, the City of London Corporation and UK Finance. Through these forums we have been able to ensure that the views of the treasury community are heard by policymakers through a number of different channels.

A list of useful material from the ACT, the Regulators, the Government and Others can be accessed from the ACT Knowledge Hub - https://www.treasurers.org/hub/technical/covid19

The CCFF scheme

In line with previous notices, The Bank of England and HM Treasury gave 6 months’ notice of the withdrawal of the facility. The CCFF will close for new purchases of CP from eligible issuers with effect from 23 March 2021. This means that the Facility will make no purchases of CP after 22 March 2021. The CCFF will also close to new applications from counterparties and issuers looking to become eligible on 31 December 2020.

Taken from the Bank of England report, the following table provides some interesting insights (https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/results-and-usage-data).

The data shows that only 29% of applicants to the CCFF facility have currently drawn on this facility (down from 32% at the end of August), the notional sum of drawing capacity has increased by 4% and the actual amount currently outstanding has decreased by 6%.

Details of current borrowers under the facility can be found at https://www.bankofengland.co.uk/-/media/boe/files/markets/covid-corporate-financing-facility/cp-held-by-ccff-by-business.xlsx.

More information on the programme can be found under https://www.bankofengland.co.uk/markets/covid-corporate-financing-facility. 

If you have questions you’d like raised with the Bank of England, please email technical@treasurers.org

We are starting to hear from firms that have been able to access the CCFF programme; we provide anonymised feedback to the Bank of England. If you’d like to share your experiences, please drop an email to technical@treasurers.org.

Other Schemes

On September 24, the Chancellor of the Exchequer extended the government’s three Coronavirus business interruption loan schemes and the Future Fund. The extension aligned all the end dates of the schemes to 30 November.

In addition, it was announced on September 25 that businesses applying for the CBILS or CLBILS will benefit from more flexibility on the date the test of whether or not their business is an ‘undertaking in difficulty’ is assessed.

The new guidance allows for the ‘undertaking in difficulty’ assessment to be determined at the date of application for the schemes. Businesses that were ‘undertakings in difficulty’ on 31 December 2019 but are no longer ‘undertakings in difficulty’ will now be (in principle) eligible for the schemes. This flexibility means that businesses can take action to convert their debt (for example, in the form of loan notes) to shares (equity) in order to qualify for the schemes, giving them the option to restructure their finances before application so they may become eligible.

The Bank has also made available details of the other schemes being made available (https://www.gov.uk/government/collections/hm-treasury-coronavirus-covid-19-business-loan-scheme-statistics#Coronavirus-Business-Interruption-Loan-Scheme ). The tables below show an extract from this and it shows that:

1. The average value of a CLBILS facility has remained steady at £6.8m since end August
2. The average value of a CBILS facility has increased by £6k to £0.232m since end August There have been 143 times as many applications for CBILS compared with CLBILS with the amount lent under the CBILS scheme being 4 times the amount lent under CLBILS
3. The total value of CBILS loans has increased by 13% since the end of August
4. The total value of loans under the Bounce Back scheme has increased by 7% since mid-August to £38bn and the average value of a Bounce Back Loan has remained relatively stable at £30,152

 The British Business Bank has started to release details of the take up of the schemes it administers split by:

• Facility
• Region
• Industry sector

Update from the UK regulators

Business Interruption cover: The High Court handed down its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case. The test case removed the need for policyholders to resolve a number of the key issues individually with their insurers.  It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market. A summary of the key points has been produced by the FCA’s legal team at Herbert Smith Freehills

Insolvency: A number of changes to protect businesses from insolvency were introduced in the Corporate Insolvency and Governance Act and were due to expire on 30 September 2020. The temporary measures include:

• companies and other qualifying bodies with obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30 December 2020.
• statutory demands and winding-up petitions will continue to be restricted until 31 December 2020 to protect companies from aggressive creditor enforcement action as a result of coronavirus related debts
• termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can protect their business if necessary
• the modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until 30 March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. Measures will also ease access for companies subject to a winding up petition. The temporary moratorium rules will also be extended to 30 March 2021

Turnover expectations : Turnover expectations of the same businesses over time, using the final results of Waves 6 to 11 of the voluntary fortnightly Business Impact of Coronavirus (COVID-19) Survey (BICS), covering the period 1 June to 23 August 2020 was released by the ONS. It showed that

• Between early June and mid-August 2020, the proportion of businesses expecting an increase in turnover gradually fell from 27% to 18%, while the proportion of those expecting a decrease also fell, from 16% to 10%
• The likelihood of a business's turnover turning out to be lower than they predicted two weeks prior was 48% between early June and mid-August
• Smaller-sized businesses in this sample (those with fewer than 250 employees) correctly predicted their turnover 39% of the time, compared with 34% for larger businesses

The ONS produces a fortnightly analysis of business responses in a number of key areas. The highlights from the latest report included the following table:

Of businesses who had not stopped trading, the percentage reporting having no or less than six months cash reserves fell slightly from 44% and the percentage reporting having more than six months cash reserves rose slightly from 35% previously.

It should be noted that the survey population tends to be small businesses.

Feedback from Treasurers

The slight decrease in the number of active borrowers under the CCFF scheme reflects comments we have heard from treasurers who have reported repaying government loans and in some cases repaying furlough related payments they received.

Many treasurers would see no benefit from negative interest rates as their loan documentation carries interest rate floors.

Views from across the world

As a member of the International Group of Treasury Associations, and the European Association of Corporate Treasurers and working with our colleagues in the US National Association of Corporate Treasurers we are keeping an eye on developments overseas.

Previously in March, the European Central Bank (ECB), the Bank of England (BoE), the Bank of Japan (BoJ) and the Swiss National Bank (SNB) had all struck an agreement with the US Federal Reserve (Fed) to reopen prior arrangements. The agreement was made in order to combat market distress as a result of the global coronavirus pandemic by helping to maintain the flow of credit to overseas homes and businesses. The decision to scale back liquidity operations is being seen as an indicator that markets are starting to make a recovery.

The has been reports that the EC is setting up a working group to deliver risk transfer solutions for pandemics and other cat risks, which will consider a pan-European private-public pool with EU funding at the very top.

Engaging with the treasury community

We welcome conversations with our members on:

• How you’re dealing with the crisis
• What you’d like us to raise with the various bodies we are in regular contact with
• How the ACT can support you during this challenging time.

Send an email to technical@treasurers.org and either James Winterton, Naresh Aggarwal or Sarah Boyce will be in touch with you.

If you have found any resources which you feel we should add to our COVID-19 site, please email us with details.

Naresh