Legal Shorts 27.03.20 including the Coronavirus Business Interruption Loan Scheme (“CBILS”)

The Coronavirus Business Interruption Loan Scheme (“CBILS”)

1  Summary

CBILS is a government scheme which has been set up to ensure the availability of credit to SMEs during the Covid-19 pandemic, particularly smaller SMEs. It guarantees loans to SMEs covering the first 12 months of interest of loans drawn under the scheme.

2  Key points

  • CBILS covers term facilities, overdrafts, invoice finance facilities and asset finance facilities
  • The maximum value of facility provided under CBILS will be £5 million
  • No fee for borrowers to access the scheme
  • Eligibility: be UK-based business; turnover ≤ £45m; operate in a sector that is not ineligible or restricted; be otherwise unable to meet a lender’s normal lending requirements for a fully commercial financing
  • Ineligible and restricted sectors include banks and insurers (amongst others).
  • To apply borrowers should approach one of the accredited lenders through their website

3  More details

About CBILS

  • CBILS is designed to be offer government-backed support to private sector lending. Moreover, the scheme works with over 40 ‘accredited lenders’ who provide the financing, however, that provision of credit is then supported by HM Government in the form of a guarantee to the accredited lender of the borrower’s obligations (up to a value of 80% of the facility offered). Decision-making on the provision of credit and eligibility for CBILS rests fully with the accredited lender.
  • The accredited lender (to whom the borrower applies for finance) receives a guarantee from the British Business Bank (which is backed by HM Government) up to the value of 80% of the facility provided.
  • The borrower remains liable for payments and repayments under the financing but the credit support offered enables lenders to provide credit where they would otherwise be unable to or be constrained.
  • HM Government will “cover” the first 12 months of interest payments such that all borrowers will be entitled to a “Business Interruption Payment” to cover interest and fees for a period of 12 months from the date of drawdown (subject to a €800,000 cap for all borrowers save a number in particular sectors, including fisheries, aquaculture and agriculture to which lower caps apply).

4  Eligibility

Borrower criteria

A borrower must be UK-based with a turnover not exceeding £45m per annum. In addition:

  • The borrower must not have received State aid beyond €200,000 over the current previous two financial years.

  • The borrower must be unable to meet a lender’s normal lending requirements for a fully commercial financing (e.g., for lack of an adequate security package) but be otherwise financial viable in the longer term. In other words, if finance can be offered on the ordinary day-to-day business terms of the lender, CBILS will not be needed or indeed used.

Eligibility

CBILS is unavailable to those in “ineligible” or “restricted” sectors: see the British Business Bank website, but in broad terms (as at the date of writing) the following are ineligible: banks, building societies, insurers and reinsurers (but not insurance brokers); public sector (e.g., schools); employer, professional, religious or political membership organisations and trade unions.

Types of financings covered

  • CBILS covers a wide range of business financing products, including:
    • term facilities
    • overdrafts
    • invoice finance facilities
    • asset finance facilities

Finance terms covered are from 3 months to 10 years for term loans and asset finance and up to a maximum of 3 years for revolving credit facilities and invoice finance. The maximum facility value covered under CBILS will be £5 million.

The Cummings Fisher Comment – our view is that CBILS will be of value to many firms and people, in a variety of manners. For those in the financial sector who structure products, the Cummings Fisher team, backed by our colleagues in our sister firm Fieldfisher, is here to help and advice

Impact of the coronavirus on firms’ LIBOR transition plans

​​On 25 March 2020, the FCA issued a press release confirming that it has been discussing, with the Bank of England and members of the Working Group on Sterling Risk-Free Reference Rates, the impact of the coronavirus on firms’ LIBOR transition plans.

The FCA explained that the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed and should remain the target date for all firms to meet, stating that the transition from LIBOR remains an essential task that will strengthen the global financial system. Many preparations for transition will be able to continue. There has, however, been an impact on the timing of some aspects of the transition programmes of many firms. Particularly in the UK market where certain sectors have made less progress in transition and are therefore still more reliant on LIBOR, such as the loan market, which is likely to affect some of the interim transition milestones.

The FCA confirmed that it will, with the Bank of England and the Working Group, continue to monitor and assess the impact on transition timelines, and will update the market as soon as possible.

The Cummings Fisher Comment – the transition of LIBOR will have an enormous impact not just on the financial arena but on many areas of commerce and daily life. For an introduction on IBORS, please see our publication from earlier this month, IBORS – an overview

ESMA recommends action by financial market participants for COVID-19 impact

On 13 March 2020, following a Board of Supervisors discussion examining the market situation and contingency measures taken by supervised entities, ESMA announced that it is making the following recommendations to financial market participants:

  • Business Continuity Planning – all financial market participants should be ready to apply their contingency plans, including deployment of business continuity measures, to ensure operational continuity in line with regulatory obligations;
  • Market disclosure – issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation;
  • Financial Reporting – issuers should provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures; and
  • Fund Management – asset managers should continue to apply the requirements on risk management, and react accordingly.

ESMA stated that in coordination with National Competent Authorities, continue to monitor developments in financial markets as a result of the COVID-19 situation and is prepared to use its powers to ensure the orderly functioning of markets, financial stability and investor protection.

The Cummings Fisher Comment – as we have commented above, the responses to Covid 19 are international across all bodies. Follow us on LinkedIn

Temporary ban on net short positions by Austrian FMA

On 25 March 2020, the FCA issued a press release regarding the announcement by the Austrian Financial Market Authority Austrian FMA restricting transactions under Article 20 of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012.

The FCA explained that this applies to shares admitted to trading on the regulated market of the Vienna Stock Exchange (Amtlicher Handel; WBAH) and for which the Austrian FMA is the relevant competent authority.

This measure is effective immediately until the end of the day on 18 April 2020.

The Cummings Fisher Comment – while a number of EU exchanges are taking this position, it is important to note that the FCA has resisted and has not brought any short selling ban in its jurisdiction, We posted this on LinkedIn earlier in the week and will continue to keep you updated.

ESMA issues guidance on accounting implications of COVID-19

On 25 March 2020, ESMA issued a Public Statement on some accounting implications of the economic support and relief measures adopted by EU Member States in response to the COVID-19 outbreak.

The measures include moratoria on repayment of loans and have an impact on the calculation of expected credit losses in accordance with IFRS 9. It stated that in view of upcoming periodic information to be published by European issuers, the Public Statement provides guidance to issuers and auditors on the application of IFRS 9 Financial Instruments, specifically as regards the calculation of expected credit losses and related disclosure requirements.

The Cummings Fisher Comment – central banks and regulators over the world are taking action to mitigate the impact of Covid 19 on all aspects of the economy. Another example of a delay to regulatory changes is the CFTC’s one-year extension of the initial margin compliance deadline for firms with the smallest uncleared swaps portfolios.

FSA/FCA Interest Rate Hedging Products review

On 20 March 2020, John Swift QC, the Independent Reviewer examining the FSA and the FCA’s supervisory intervention in relation to Interest Rate Hedging Products (IRHPs), has informed the FCA that the deadline for submission of his report in relation to the Review must be extended until early 2021 as a result of necessary precautions to be taken in response to the COVID-19 virus.

The Review was commissioned on 20 June 2019 by the Non-Executive Directors of the Financial Conduct Authority (FCA) into the (IRHPs) to carry out the Lessons Learned Review into the supervisory intervention on IRHPs.

For the purposes of the Review, Mr Swift has held meetings with and proposes to hold further meetings with a number of witnesses, including: present and former members of FCA staff; representatives of firms appointed to act as Skilled Persons under Section 166 of the Financial Services and Markets Act 2000 in respect of the IRHP redress arrangements; representatives of the banks which were party to those arrangements; bank customers, and others.

The Cummings Fisher Comment – there are parallels here with the steps being taken in the Courts. Where there is a need for witnesses to appear in person then a delay is necessary.

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