BoE Updates Process for Credit Quality Review of CCFF Issuers
BoE published a Market Notice that provides an update on how credit quality of COVID Corporate Financing Facility (CCFF) issuers will be monitored and reviewed in advance of the closure of the CCFF. With effect from October 09, 2020, the process to review the credit quality of eligible issuers in the CCFF will be enhanced. Any eligible issuer wanting to issue new commercial paper into the CCFF after that date will be subject to a review to consider whether that issuance remains in line with the purpose of the facility. In addition to the enhanced review process, from October 09, any firm whose long-term credit rating falls to, or below, BBB-/Baa3/BBB (low) or equivalent after March 01, 2020 will have their aggregate drawing limit capped at a maximum of GBP 300 million. This will not affect outstanding drawings if already in excess of GBP 300 million.
In case an issuer wanting to issue commercial paper into the CCFF after October 09 has a current credit rating (or equivalent) of investment grade, it can expect to be able to proceed to issue commercial paper into the CCFF, subject to providing certain supporting evidence and the issuer’s approved drawing limit. In cases where an issuer’s credit rating (or equivalent) has fallen below the levels deemed equivalent to investment grade, the issuer will have the option to pursue a review on which HM Treasury, as the ultimate risk-owner of the CCFF, will take the final decision. The review will consider whether the issuer’s use of the CCFF remains within the purpose of the facility, which has always been to provide short-term liquidity support to fundamentally strong businesses.
To support the revised credit quality requirements, eligible issuers should notify BoE of their intention to sell new commercial paper into the CCFF no later than five business days prior to their requested sale date. The notification should include the issuer’s recent credit rating or equivalent evidence of investment-grade credit quality, to a comparable standard to the evidence submitted to establish initial eligibility for the CCFF. As part of any review, supporting information will be requested from issuers. The review should be expected to take at least four weeks to complete, which may mean that issuance cannot take place on the issuer’s requested date. In light of the changes to the CCFF outlined in this Market Notice, where appropriate, HM Treasury may, in its sole discretion, allow an issuer to issue new commercial paper into the CCFF while the review process is undertaken. This will be decided on a case-by-case basis on request by the issuer.
The CCFF, which was launched in March 2020, has helped eligible businesses bridge COVID-19-related temporary disruption to their cash flows. Consistent with the reduction in CCFF usage in recent months, on September 22, 2020, BoE and HM Treasury confirmed that the CCFF will close for new purchases of commercial paper with effect from March 23, 2021. As announced on September 22, new applications to participate in the CCFF will be accepted until December 31, 2020, subject to the enhanced credit quality review process.
Related Link: Market Notice
Keywords: Europe, UK, Banking, COVID-19, CCFF, Credit Risk, Credit Ratings, HM Treasury, BoE
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
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