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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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United Kingdom | Publication | April 1, 2020 (UPDATE to publication of March 24, 2020)
HM Treasury and the Bank of England have provided further operational details and pro forma documentation in relation to the Covid Corporate Financing Facility (CCFF). This client briefing will be of interest to any large non-financial company that may wish to obtain immediate liquidity funding under the CCFF.
The CCFF is intended to provide liquidity funding to larger non-financial companies that make a material contribution to the UK economy and were in sound financial health prior to the impact of COVID-19 (the Coronavirus Business Interruption Loan Scheme is aimed at supporting smaller businesses). The CCFF was previously announced by HM Treasury and the Bank of England in a market notice issued on March 18, 2020 and supplemented by a further market notice on March 20, 2020. Further guidance was published on March 23, 2020.
Under the CCFF, the Bank of England will purchase short-term debt in the form of commercial paper (CP) of up to one year in maturity. Companies wishing to use the CCFF are advised to liaise with their bank to confirm their eligibility. Companies that are eligible will be required to complete an application form and submit this together with the required supporting documentation. The CCFF must then be accessed via a bank that is a participant in the scheme.
The Bank of England’s intention was to start processing applications for the scheme on Monday, March 30, 2020, with the first transactions taking place on Tuesday, March 31, 2020 and funding taking place on Thursday, April 2, 2020 (T+2 settlement).
The headline commercial terms of the CCFF are set out below.
Eligible Issuers |
Companies1 (including their finance subsidiaries2 ) that:
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Eligible Securities |
Sterling denominated commercial paper with the following characteristics:
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Currency | GBP Sterling only | ||||||||
Minimum offer | £1 million nominal | ||||||||
Minimum offer increment | £0.1 million nominal | ||||||||
Maximum drawing |
No specified upper limit for the scheme, but for primary market purchases will be subject to individual issuer limits. These limits will reflect a range of factors, including an issuer’s credit rating. An indicative guide to the maximum limit pre-approved by HM Treasury for issuers at different ratings is set out in the table below
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Pricing |
Primary market purchases of commercial paper will be at a spread above a reference rate, based on the current sterling overnight index swap (OIS) rate. The respective reference OIS rate will be determined at 09:45 on the day of the operation. Secondary market purchases of commercial paper will be at the lower of amortised cost from the issue price and the price as given by the method used for primary market purchases as set out above. An additional small fee (currently set at 5bps and subject to review) for use of the secondary facility will be payable separately. The respective spreads are subject to review, as at March 23, 2020 these are:
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Availability |
The CCFF is available from March 23, 2020 and will close to issuers on December 31, 2020. Issuers already signed up to the CCFF at that date will continue to be able to create new issuances until the closure of the CCFF. The Bank of England intends to close the CCFF to new purchases on March 23, 2021. Securities with a maturity date beyond March 23, 2021 will be purchased on any day up to and including March 22, 2021. |
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Timing | Daily purchases between 10.00 and 11.00 | ||||||||
Settlement | T+2 days | ||||||||
Access | Must be accessed via a bank which is appropriately authorised under the Financial Services and Markets Act 2000 (FSMA) and a participant in the CCFF. | ||||||||
Documentation |
For existing issuers of commercial paper, Euro commercial paper with standard features that is issued using ICMA market standard documentation will be acceptable. Standard form pre-approved commercial paper documentation based on the ICMA standard has been made available by the Bank of England. Further details are provided below. |
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Published Information |
On each Thursday at 15.00, the following information on the use of the CCFF will be published:
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The following paragraphs consider certain aspects of the CCFF in more detail.
The Bank of England has advised that companies that can use the CCFF will normally be:
The Bank of England will also consider whether the company3:
Commercial paper issued by banks, building societies, insurance companies and other financial sector
entities regulated by the Bank of England or the Financial Conduct Authority will not be eligible. Further leveraged investment vehicles or companies within groups which are predominantly active in businesses subject to financial sector regulation will not be eligible.
The CCFF is intended to provide liquidity for companies that were in “sound financial health” prior to the outbreak of coronavirus. The easiest way to satisfy this requirement is by reference to credit ratings.
Where available, issuers should have a short-term rating of A3/P3/F3/R3 or above, or a long-term rating of BBB-/Baa3/BBB-/BBB low or above by at least one of the major credit ratings agencies: S&P, Moody’s, Fitch or DBRS Morningstar as at March 1, 2020. Where a company has more than one rating, it will not be eligible where one or more of its ratings are below the minimum rating specified above.
Issuers that were at the lowest rating and on negative watch or negative outlook as at March 1, 2020 will be considered.
If an issuer is downgraded after March 1, 2020 below the minimum credit ratings set out above, the issuer will remain eligible for primary and secondary market purchase in the CCFF, subject to HMT approval.
Where a credit rating is not available, the Bank of England advises prospective participants to discuss with their bank as to whether the company was viewed internally as equivalent to investment grade as at March 1, 2020. If this is confirmed by the relevant bank, the Bank of England will then make an assessment of whether issuers can be deemed as equivalent to having a public investment grade rating. In making this determination, the Bank of England will take into account the range of banks’ internal ratings across the company’s commercial bank counterparties; a company will need to be rated consistently by its banks as investment grade in order to be deemed equivalent to having a public investment grade rating. Within this context, the Bank of England advises that it has requested and received from Credit Benchmark a credit assessment file which consolidates in aggregate form the corporate credit estimates of a number of the largest UK banks.
As a further alternative where a company does not have an existing credit rating, the Bank of England has suggested that it may be possible to obtain a public rating or a private credit assessment at a recent point in time from one of the major agencies that can be shared with the Bank of England and HM Treasury as evidence of investment grade credit quality. The Bank of England is speaking with the credit rating agencies on this subject and has provided a list of standard rating agency products that it consider suitable for these purposes.
The CCFF scheme envisages banks performing two distinct roles for companies that intend to participate in the CCFF:
The CCFF only provides funding in GBP Sterling, although issuers are able to swap the GBP Sterling proceeds into other currencies.
If a company has an existing CP programme, it should be possible to use that existing programme to issue eligible securities for the CCFF. The most notable requirements for those issuers intending to use existing an programme are:
If the existing CP programme satisfies all applicable eligibility criteria and this has been confirmed with the assisting bank, the relevant issuer can apply by submitting an application form and supporting documents (see How to Participate below).
Where there is no existing programme, eligible securities will need to be issued, either under a new CP programme or a standalone issuance. In either case, the key determinants of how quickly commercial paper can be issued are likely to be the appointment of parties (in particular, a dealer and paying agent), agreement of the legal documentation and delivery of condition precedent documents.
In terms of documentation:
Unless the company intends to be a regular issuer of commercial paper, a standalone programme based on the Bank of England approved standard documents will be the most straight forward option for prospective new issuers of commercial paper.
In addition to the CCFF application documents discussed below (see How to participate below), the condition precedent documents to be delivered for an issuance of commercial paper would typically include:
In addition to the eligibility requirements, stakeholders will need to consider the impact on any existing financing arrangements, in particular whether the issuance of commercial paper is permitted. This is important given that the Issuer will be required to represent and warrant that the issue of the commercial paper will not conflict with or violate an agreement or instrument binding on it and the Bank of England’s obligation to fund is also subject to a draw stop event where any event of default, default termination, acceleration event or termination event has occurred.
This will generally require a review of existing finance documents to determine if the issuance of commercial paper is permitted under, in particular, any restrictions on the incurring of financial indebtedness, any restrictions on granting guarantees and security by any obligor under existing financing (given the requirement to notify the Bank of England of any security or guarantees created and to offer equally and rateably such guarantees and security to the Bank of England, the knock-on impact on existing financial covenants on issuing commercial paper.
The existing contractual position may influence whether the commercial paper is issued via an existing company or a special purpose vehicle to issue the commercial paper, noting that where a special purpose vehicle is used the requirement for a primary entity guarantee may also require consent under existing financing documents and there are similar representations in the standard form guarantee to those set out above as to the authority and ability for the guarantor to give such a guarantee without these breaching or conflicting with other agreements binding on the guarantor.
To the extent consents or waivers are required there is, as yet, no mention of legislation being introduced to override any provisions in existing finance documents related to a company’s existing financial indebtedness or to shorten the period for obtaining their consent by imposing short “snooze and lose” voting periods. Will the company seek a waiver or amendment of any restrictions on incurring further debt? Will existing financiers be able to react in time or will a company access the CCFF notwithstanding such restrictions, assuming existing creditors will be supportive and/or the needs of the business should prevail? In any event, early engagement and stakeholder management will be key. Consideration will also need to be given by issuers as to whether it can give the representations and warranties as to its solvency (or where these have arisen as a result of the COVID-19 outbreak these have been disclosed to the Bank of England).
The directors of the Issuer will need consider carefully in the current circumstances whether they should incur further debt in the form of the programme. In particular, given the relatively short-term maturity of the commercial paper whether they can reasonably conclude they will be able to repay this upon its maturity or whether other arrangements will be put in place at that time to see it refinanced, repaid, settled or waived. In light of companies and group facing huge financial difficulties at the current time, the directors will need to take advice as to whether they can benefit from the programme without the risk of personal liability.
The Issuer Eligibility Form requests the requests the issuer to provide certain information and/or confirmations, including:
The Issuer Undertaking and Confidentiality Agreement contains:
Issuer Undertaking and Confidentiality Agreement incorporates the Operating Procedures. The Operating Procedures document governs participation in the CCFF, explains the operational procedures of the CCFF and also incorporates the CCFF Terms and Conditions (as defined and discussed below).
We anticipate that in many cases, companies will wish to disclose to their shareholders and creditors that they have obtained funding under the CCFF and note that this is excluded by the confidentiality undertaking. The form of confidentiality undertaking includes a customary carve-out for information that “is required to be disclosed by law, regulation or any governmental or competent regulatory authority”. This carve-out will permit disclosure to the market where required under applicable market abuse legislation but would not permit disclosure to other parties (even where disclosure would be required as a contractual obligation). The Bank of England requires notification of the proposed form, timing, nature and purpose of any such disclosures in advance. This is a matter that will require careful consideration and on which regulatory guidance would be helpful.
Where securities are issued by a finance subsidiary that does not have an investment grade rating, the issuer may need to provide a guarantee from the primary entity of their group.
If a guarantee has been provided as part of the CP programme, it will need to be English law governed and on market standard terms, accompanied by a legal opinion.
If the primary entity is not incorporated in the United Kingdom, the guarantor should also provide a legal opinion on the guarantee. Both documents should follow the pro forma documents on the Bank of England’s website (see How to Participate below).
Prospective issuers should note that pro forma form of guarantee includes a representation that the guarantee does not conflict with “any agreement or instrument binding upon the Guarantor”.
Upon being accepted, the issuer will receive an Admission Letter which incorporates the Terms And Conditions For Counterparties in the Covid Corporate Financing Facility (the CFF Terms and Conditions). The CFF Terms and Conditions largely repeat the representations made in the Issuer Undertaking and Confidentiality Agreement; the same issues already discussed in Issuer Undertaking and Confidentiality Agreement above will apply with the addition of the following:
Eligible companies wishing to access the CCFF will need to confirm their eligibility with an appropriate bank and complete the following forms:
Document | Overview |
Issuer Eligibility Form |
Sets out administrative details in relation to the issuer and commercial paper (CP) programme. Requests the issuer to provide certain information and confirmations. See Considerations - Issuer Eligibility Form above. |
Issuer Undertaking and Confidentiality Agreement |
Sets out:
Incorporates Operating Procedures. See Considerations - Issuer Undertaking and Confidentiality Agreement above. |
Guarantee (if required) | Pro forma guarantee to be provided by primary entity (if required). |
Legal Opinion in relation to Guarantee (if required) | Pro forma legal opinion to be provided by issuer legal counsel in respect of Guarantee where the primary entity is not incorporated in the United Kingdom, the guarantor should also provide a Legal Opinion on the Guarantee |
The forms are available here.
In addition to the above, the following supporting documents will need to be provided with the application:
Completed documentation should be sent to CCFF-Applications@bankofengland.co.uk.
We can advise relation to:
Although the CCFF Operating Procedures” suggest this eligibility criteria will apply to the Issuer, we assume in this context they will consider other companies within a group.
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