Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Financial Services UK newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360, London (October 12, 2020, 11:53 AM BST) -- British businesses tapping into the Bank of England's £30 billion ($39 billion) lending program designed to boost the economy during the coronavirus crisis must provide information on their credit rating in an effort to prevent defaults, the government has announced.
HM Treasury said on Friday that companies applying for the so-called COVID-19 corporate financing facility should hand over up-to-date details of their credit rating to the Bank of England. The safeguard, which too effect on Friday, will allow the central bank to evaluate the prospective risk of the debtor and assess the chances that the company will default on repayments.
"Where the firm's credit rating has dropped below investment grade, the Treasury will ask for additional information before deciding the appropriate level of support," the finance ministry said as it set out guidance.
The program was announced by HM Treasury in March in a package of measures to support businesses during the pandemic. Companies can borrow money from the Bank of England through short-term debt, known as commercial paper.
Chancellor Rishi Sunak had also announced a separate coronavirus loan scheme in April to allow small companies and sole traders to borrow up to £50,000 from banks during the crisis.
But the National Audit Office has estimated that up to 80% of businesses that have borrowed money under that lending program will default on their repayments. Combined with the risk of fraudsters exploiting the scheme, this could cost taxpayers up to £26 billion, the budget watchdog said.
The Treasury said its latest measures are aimed at preventing the corporate financing facility from meeting the same fate.
The government said on Friday that the Bank of England has so far lent £30 billion under the facility to large British companies, which employ almost 2.5 million people. A business must demonstrate that it was in "sound financial health" before the pandemic to be eligible. It must also generate significant revenues in the U.K. or serve a large number of customers.
The Bank of England said Friday that the corporate financing facility will close in March 2021.
--Editing by Ed Harris.
For a reprint of this article, please contact reprints@law360.com.
