friday, 17 april of 2020

Covid-19 - Business

Start-ups and larger companies set for extra UK bailout funds

New emergency measures designed to keep businesses operating through the coronavirus crisis are set to be unveiled by the government, with bailout packages aimed at some of the largest companies in the UK as well as start-ups that are struggling to stay afloat.

On Friday, chancellor Rishi Sunak will launch a long-awaited loan scheme for companies in the "squeezed middle" that are unable to tap the existing programmes the Treasury launched shortly after the country was locked down on March 23.

Distressed companies with turnover of more than £45m will be able to access state-backed bank loans of up to £50m, with no upper limit on the size of the businesses able to access the scheme.

"I want to ensure that no viable business slips through our safety net of support as we help protect jobs and the economy," Mr Sunak said.

Keith Morgan, chief executive of the British Business Bank, which will help operate the scheme, said: “More finance for viable midsized and larger firms will help them protect jobs and be in a better position to resume normal business when the current pandemic subsides."

Treasury officials are also working on separate proposals to provide funds to fast-growing start-ups backed by venture capital firms, which have often been shut out of existing schemes because they are unprofitable.

An announcement is expected to come next week on the start-up scheme, which, as currently envisaged, could see the government end up with stakes in some of the UK’s fastest-growing companies. The scheme is likely to offer businesses "convertible" state-backed debt if it is matched by funds from their venture capital backers.

These loan notes would automatically convert into an equity stake in the business — normally at a discount — unless repaid.

Officials were still working out the details of the scheme on Thursday but people familiar with the matter said that one option was for the government to match pound-for-pound funding up to £12.5m for a total injection of £25m.

Work at the Treasury on the schemes has become more urgent in recent days to ensure funding becomes available, with many companies in the UK fast running out of cash with the lockdown already in its fourth week and now extended for another three weeks.

The Treasury promised to address this "squeezed middle" of companies at the start of the month, with thousands of businesses too big for the SME-focused scheme worried about surviving the crisis.

Both schemes seek to address gaps in the coverage of the government’s existing bailout package, which has set aside £330bn in funding in two schemes.

One, aimed at smaller companies with turnover of less than £45m, offers state guarantees on 80 per cent of loans up to £5m. The other offers companies with an investment-grade rating access to a Bank of England commercial paper scheme.

The new scheme for companies with a turnover of more than £45m but less than £500m will offer access to loans of up to £25m from their banks, with the government guaranteeing 80 per cent of the debt. Larger companies will be able to tap up to £50m in loans with similar guarantees.

Unlike the one for smaller companies, which offers interest free loans for up to a year, this scheme will allow the banks to lend at commercial rates of interest.

About 10,000 companies are expected to fall within this group, according to people familiar with the situation, including many listed companies in the FTSE 250 that cannot get an investment-grade rating to access the Bank of England’s commercial paper scheme.

Banks "will be working throughout the weekend to get this scheme up and running for Monday", said Stephen Jones, head of UK Finance.

Unlike the scheme for smaller companies, the loans will carry an interest rate decided by banks — but the state guarantee is hoped to encourage lending to companies struggling to survive the pandemic that otherwise would not be able to access much-needed cash.

The proposals are also set to provide some relief to private equity-backed companies, which have been worried that banks will judge whether they are eligible for emergency loans on the overall size of the parent company portfolio.

Officials are expected to allow these companies to be judged on their own basis, rather than that of their private equity backers, which means that multiple companies owned by the same investors can access the funds.


(Published by Financial Times, April 17, 2020)
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