On 2 April, the Chancellor of the Exchequer announced a scheme aimed at providing support to the so-called "squeezed middle", which comprises UK companies that are too small to be eligible for support via the COVID Corporate Financing Facility, but too big to apply for a loan under the Coronavirus Business Interruption Scheme. The anxiously awaited scheme is called the Coronavirus Large Business Interruption Loan Scheme (the "CLBILS") and will launch on Monday 20 April. Below, we provide an overview of the scheme and highlight some changes that have been made since the initial announcement was made.
Coronavirus Large Business Interruption Loan Scheme
The CLBIS is a guarantee scheme, backed by the British Business Bank, which will facilitate the provision of loans to businesses that have been impacted by the COVID-19 outbreak. To implement CLBILS more speedily, it will make use of the existing infrastructure and delivery mechanisms that have been put in place under the scheme for SMEs. Accredited lenders that provide financing to companies via CLBILS will benefit from a government-backed guarantee of 80% against the outstanding guarantee facility balance (including interest and fees), subject to an overall portfolio cap. Borrowers will be 100% liable for repayment of any loan provided under the CLBILS.
Under the scheme, accredited lenders will be able to provide financing of:
- up to £25 million to businesses with a turnover from £45 million up to £250 million; or
- up to £50 million for those businesses with a turnover of more than £250 million.
CLBILS supports the provision of a range of finance products, including revolving facilities or overdrafts, invoice finance facilities, asset finance facilities and term loans. The tenor of the facilities range from three months up to three years.
Unlike the smaller CBILS scheme, borrowers under CLBILS will not receive a Business Interruption Payment to cover interest payments for the first 12 months or lender-levied fees.
Which companies are eligible for support through the CLBILS?
The CLBILS will be available to companies that:
- are UK-based in their business activity;
- have an annual turnover of more than £45 million;
- self-certify that the business has been adversely impacted by the coronavirus;
- has not received support under the Bank of England's COVID Corporate Financing Facility; and
- have a borrowing proposal that the lender:
- would consider feasible were it not for the coronavirus pandemic; and
- believes will enable the company to trade out of any short- to medium-term distress.
Businesses in all sectors are eligible to apply for CLBILS with the exception of credit institutions (falling within the remit of the Bank Recovery and Resolution Directive), building societies, insurers and reinsurers (but not insurance brokers), public-sector bodies, grant-funded further education establishments and state-funded primary and secondary schools.
Provided that business activity is operated through a business account and the business generates more than 50% of its turnover from trading activity, the scheme is open to sole traders, freelancers, body corporates, limited partnerships, limited liability partnerships or other legal entities carrying out a business activity in the United Kingdom, with a turnover greater than £45 million.
Is CLBILS available to private equity-backed portfolio companies?
Yes. Furthermore, the British Business Bank has confirmed that any company with a private equity backer (even where the backer has a dominant stake) will be treated as a separate company for the purposes of assessing turnover and will be eligible to a separate loan under CLBILS.
How much will companies be able to borrower under CLBILS?
In addition to the previously mentioned maximum facility sizes of £25 million or £50 million (determined by group turnover), the amount that can be made available to a particular company under the scheme should not typically exceed either double the borrower's annual wage bill for the latest available year, or 25% of the borrower's total turnover for the most recent year available. The amount may, however, be increased to cover a company's expected liquidity needs for the following 12 months where it is adequately justified, based on self-certification by the borrower. All lending decisions under CLBILS are fully delegated to the accredited lenders.
Will security be required under the scheme?
It is anticipated that accredited lenders will follow their usual credit policy when assessing the need for security. Personal guarantees are not permitted for CLBILS facilities below £250,000 and for facilities above this threshold, claims on personal guarantees cannot exceed 20% of losses on the scheme facility after all other recoveries have been applied.
If a company has received other forms of government support, will it be excluded from CLBILS?
If the company has taken advantage of the COVID Corporate Finance Facility then it will be excluded from CLBILS, but participation in any of the other government schemes will not affect eligibility for CLBILS.
How can companies access financing under the scheme?
Companies should apply directly to the accredited lenders under the scheme as detailed on the British Business Bank website, noting that the facilities offered by each lender will differ. Where a company has an existing relationship with one of the accredited lenders, it is advisable to approach the company's relationship manager at the relevant institution in the first place.
To reach a lending decision, accredited lenders under CLBILS will request a borrowing proposal setting out the amount the company would like to borrow, details of how the loan will be used and the repayment period. Requirements will vary by lender, but it is likely that the borrowing proposal will need to be accompanied by supporting documentation, such as management accounts, cash flow forecasts, a business plan, historic accounts and details of the company's current assets.
Upon receipt of the proposal and any supporting documentation, the lender will assess the proposal to verify that the financing is for a suitable business purpose, is appropriate for the borrower's needs and is affordable.
How quickly will a company receive funds pursuant to the scheme?
Given that lending to mid-cap and larger businesses is usually more bespoke than lending to an SME, it can take longer to negotiate the terms of the financing and is likely to vary depending on which lender is involved and any requirements regarding additional security to be taken. Lenders are, however, alert to the pressures companies currently face in light of the coronavirus economic shock and are strongly encouraged to respond swiftly and appropriately.
How the launched scheme differs from that originally announced
In a move which further emphasises the government's apparent willingness to listen to real-world business concerns and amend government relief measures where appropriate, the CLBILS has been revised in a number of ways that will benefit companies in the "squeezed middle".
Firstly, the original scheme announcement set out a limit on facility sizes of £25 million, but this has now doubled to £50 million for the largest companies. Secondly, despite previously announcing that CLBILS would only be available to UK-based companies with turnover of between £45 million and £500 million, this upper ceiling has been removed, opening the scheme up to even larger corporates than anticipated; provided they have not taken advantage of the COVID Corporate Financing Facility scheme.
If you have any questions regarding any of the topics raised in this alert; you should reach out to your usual White & Case contact.
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