Bank of England Asset Purchase Facility - Commercial Paper; Working Capital

Update 30 July 2009

Secured commercial paper facility The Bank of England has today published details of its Secured Commercial Paper Facility (SCP) to support the provision of working capital to a broad population of companies. The SCP will offer to buy securities backed by assets such as trade receivables consistent with the APF’s aim to purchase high-quality assets of broadly investment grade. The purpose of the Facility is to help improve the function of the private market by standing ready to make primary market purchases and by acting as a backstop for secondary market investors. Further details are published in a Market Notice available at: www.bankofengland.co.uk/markets/marketnotice090730.pdf

Update 8 June 2009

The Bank of England has today consulted on the introduction of two new Facilities to the APF to stimulate receivables financing and supply chain finance for companies. The ACT, in its preliminary response, has welcomed this. The Bank of England's proposals and consultation area available: www.bankofengland.co.uk/markets/apf/consultation090608.pdf In its final response dated 18 June 2009, the ACT commended the willingness of the Bank to help companies but with some reservations that the schemes could work out too complex to be attractive other than to relatively few companies. The ACT recommended making use of existing commercial mechanisms for dealing with receivables finance and supply chain finance wherever practical.

Update 24 April 2009

The Bank of England has (24 April 2009 (http://www.bankofengland.co.uk/markets/marketnotice090424a.pdf))

• confirmed its intention for the Facility to operate for as long as the highly abnormal conditions in corporate credit markets persist and materially impair the financing of real economic activity and
• that it will give at least 12 months notice of any determination of the Commercial Paper Asset Purchase Facility and that companies already eligible, or which had applied for eligibility at the date of the notice will continue to have or have (if eligibility is confirmed) access to the facility until expiry of the notice.

This announcement is made to give issuers, and especially prospective issuers, of commercial paper, greater certainty about the availability of the Facility. A consolidated market notice which includes the new provision is at http://www.bankofengland.co.uk/markets/marketnotice090424.pdf.

Update 3 April 2009

The Bank of England has, helpfully, widened the range of maturities of CP that it is prepared to buy to cover paper from one week to three months. The Market Notice is available at http://www.bankofengland.co.uk/markets/marketnotice090403a.pdf. The new consolidated Market Notice setting out how the facility works and incorporating this change is at http://www.bankofengland.co.uk/markets/marketnotice090403.pdf.

27 February 2009

The Bank of England’s new Commercial Paper purchase facility is available to a wide range of companies and offers currently attractive pricing. The Bank has issued a Market Notice www.bankofengland.co.uk/markets/marketnotice090213.pdf with details of the new facility is now available. The Bank is acting to stimulate sterling denominated CP markets. The Bank has published the spreads over Overnight Index Swaps (OIS) at which it would buy plain eligible vanilla 3-month paper on issue. (OIS are interest rate swap agreements where a fixed rate is swapped against a published index of a daily overnight reference rate for the agreed period.) The OIS 3-month rate has been running at about 150bp below LIBOR, making the rates from the Bank potentially very attractive. For example on the first day of dealing when the OIS rate was 0.52% (13th February), we saw:

For comparison, 3 month LIBOR was around 2.1% Daily updates on rates are available via www.bankofengland.co.uk/markets/money/Round2.html To encourage other buyers of CP the Bank will also be able to purchase paper in the secondary market, but for an additional 25 bp fee. To be eligible, companies must register with the Bank, need to be making a material contribution to economic activity in the UK. The Bank is deliberately considering issuers below the previous effective market standards of A1 and A2, reaching down to A3/P3/F3, though companies in this last category with negative outlook will not be eligible. The Bank would like to speak to companies about becoming eligible and the possibility of getting a rating if they don’t already have one. We have pointed out that getting a rating is not a quick process, although it would be faster for companies which have shadow ratings to convert them to public ratings. However, the Bank expects to continue these operations while current conditions prevail. The Bank hopes to have stimulated the market to continue in the long term. This means it will probably be worthwhile eligible companies getting a rating if they can support it. During the first week of operations the Bank purchased £340m of CP and in the second week a further £479m. At the ACT we are impressed by the Bank’s goodwill and practical approach in setting up this new facility and we urge companies which feel they could be eligible and have not yet contacted the Bank to do so via APF_applications@bankofengland.co.uk. You can contact the ACT’s Policy and Technical team by email at technical@treasurers.org.