Coronavirus: Chancellor Develops Plans For New Business Rescue Plan | Economic news


A new coronavirus rescue plan that could cost billions of pounds is being worked out by ministers to channel larger loans to businesses on the brink of collapse.

Sky News has learned that the Treasury is circulating a document among city institutions to propose ideas for a mechanism that would bundle individual loans into securitization vehicles that would be partially supported by the government or sold to the Bank of England .

Sources said this weekend that the program was being developed to support businesses in sectors including – but not limited to – hotels, retail and aviation.

It would only be accessible to private companies “which make a significant contribution to the British economy,” said the Treasury document, a copy of which was sent to Sky News.

A source estimated that if it went ahead, it would potentially add tens of billions of pounds to the government’s coronavirus rescue bill.

They added that the program would target companies excluded from the Covid Corporate Financing Facility (CCFF), which purchases commercial paper from quality companies, and those that require loans larger than the maximum of £ 50 million available in the part of the Coronavirus Large Business. Interrupt Loan Scheme (CLBILS).

According to the document, individual loans of up to £ 200 million could be made, although an insider called the figure “conceptual”.

He said, “By providing funding and severe loss protection on substandard loans, such an approach could support lending to these businesses.” “

If approved by Rishi Sunak, the Chancellor, banks and other institutions participating in the program could pool their loans to eligible businesses in special-purpose vehicles, with the lender retaining part of the junior portion of the debt. .

Lenders would be required to demonstrate that senior debt tranches would have been considered equivalent in quality to good quality debt before the coronavirus outbreak, which could allow them to be funded by CCFF.

Alternatively, “the loans could come from participating lenders and the risk transferred to a single pool,” says the document.

A third option could involve the government providing collateral for the senior debt tranche.

“At a minimum, the government would expect loans to be made to companies with sales of more than £ 500 million that are not eligible for CCFF,” said the document.

“We would like to know if it is necessary to lower the turnover threshold (for example to £ 250 million) to achieve sufficient diversification of the pool and manage the concentration risk. “

The Treasury also asked city institutions to comment on how the new government-guaranteed loans would fit into the existing capital structures of the borrowers, and on the extent of the “first loss” exposure. .

They also requested information on how the restrictions on additional business loans under any new scheme could be overcome.

The secured loan bonds (CLOs) created under the program would represent another attempt to support parts of the British economy that have been brought to their knees by the pandemic.

Sources close to the process warned this weekend that the new securitization initiative may not be launched in the long term, due to the removal of the turnover threshold under the CLBILS scheme.

The Treasury document obtained by Sky News was written before Mr. Sunak’s decision to extend CLBILS.

” His [the CLO structure] being reviewed, but that is not top priority at the moment, “said an insider.

The scope of the bailouts brought together by Treasury ministers during the month since the foreclosure of Britain has included tens of billions of pounds of government-supported wage subsidies and business loans, as well as support additional to millions of self-employed.

However, the government has been criticized for the rate at which loans reach troubled businesses.

Sky News revealed on Saturday that Richard Sharp, the former head of the Chancellor of Goldman Sachs, had been recruited to advise on the spectrum of support schemes.

Sunak is ending a £ 1bn rescue package for start-ups this weekend, which is expected to be announced on Monday.

The Financial Times said it would use a matching mechanism to secure funding for existing taxpayers and venture capitalists.

Treasury officials are also planning to extend borrowing from state guarantees as part of Coronavirus’ smallest business interruption loan program, allowing banks to process loans faster.

A spokesman for the Treasury declined to comment.


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