Further to the Chancellor's announcement on 3 April 2020 (which we covered in COVID-19 UK: Finance - Mind the Gap - Insight and COVID-19 UK: UPDATE: Finance - Mind the Gap - Insight), the U.K. Government officially launched the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) on 20 April 2020.
As part of CLBILS’s official launch, the Chancellor clarified that CLBILS (and the existing Coronavirus Business Interruption Loan Scheme (“CBILS”) launched on 23 March 2020 (and expanded on 6 April 2020)) can be accessed by private equity owned companies and expanded CLBILS to all companies with an annual turnover greater than £45 million. When CLBILS was initially announced companies with an annual turnover of more than £500 million were not eligible, but such cap has been removed following consultation with the business community.
Unsurprisingly, other than the turnover thresholds, the key features of CLBILS are like those of CBILS. The key features of CLBILS are:
Importantly, as noted above, the Chancellor also clarified on 16 April 2020 that companies owned by private equity firms are eligible for CLBILS and CBILS. There had previously been confusion over whether such companies were eligible for CBILS (and would be eligible for CLBILS). This was after a number of private equity owned companies said they had been turned down for facilities provided under CBILS or were facing additional hurdles to access it. Among the hurdles raised were, according to Bloomberg, the requirement that private equity-backed applicants aggregated their turnover at the private equity fund level when deciding which scheme they were eligible for. This meant some companies missed out on loans designed for businesses of their size. This prompted parts of the private equity industry to lobby the U.K. Government to clarify the rules and broaden the scope of CBILS and clarify the CLBILS position.
It will be interesting to see how CLBILS develops. While CLBILS related facilities can be provided by any accredited lender, as with CBILS, the expectation is that companies will be practically restricted to using their existing bank/lender (for example, due to speed of execution, intuitional knowledge of the company and the fact lenders are prioritising their existing customers).
Structuring of any CLBILS facility will also be an important consideration. Especially, given the pari passu requirement noted above and that CLBILS companies are, given their size, likely to have existing debt and complex capital structures. For example:
Given CLBILS facilities are to be provided on commercial terms, these structuring issues will impact the cost of these facilities to the company and the time it will take to put the CLBILS facilities in place. Such structuring issues may potentially require bespoke/deal specific solutions and/or agreements between the CLBILS lenders and existing creditors, which again will have timing and execution implications. Given the potential need for bespoke and deal specific solutions, it will be interesting to see whether direct lenders/alternative credit funds will look to become accredited lenders under the scheme so to take advantage of the risk reducing U.K. Government guarantee. These alternative lenders are used to, and are well positioned to, structure and provide bespoke financing solutions.
Another important point to consider, is how will CLBILS lenders behave in an event of default and/or enforcement scenario. Particularly because the 80% U.K. Government guarantee is only applied to the outstanding balance of the relevant facility after all other applicable recoveries are made. Could this mean that the lenders will try to hold out in a restructuring scenario? Or will they, due to the guarantee, be less interested in the initial level of recoveries? Only time will tell.
As with everything relating to the U.K. Government backed COVID-19 loan schemes it remains a case of watch this space for further detail, clarifications, practices, lobbying and potential changes.
 “Undertaking in difficulty” is defined in Article 2 (18) of the Commission Regulation (EU) no. 651/2014 of 17 June 2014. In brief summary, that definition reads as an undertaking that: (i) accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies, its capital; or (ii) started, or had fulfilled the criteria to be put into, collective insolvency proceedings; or (iii) previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated); or (iv) received restructuring aid, and was still under a restructuring plan; or (v) in the case of an undertaking that is not an SME, has had, for the past two years, a book debt to equity ratio greater than 7.5 and an EBITDA interest coverage ratio below 1.0.