The Bank of England is forcing all firms planning to draw on its emergency financing facility, for a term beyond May 2021, to restrain executive pay and dividends. Companies using the funding will also be named from June 4.
Some of Britain’s largest corporates have accessed billions in emergency funding through the Covid Corporate Financing Facility (CCFF) during the pandemic. The scheme enables them to borrow from the Bank of England by issuing short-term commercial paper.
As the central bank has been purchasing the commercial paper assets, it has helped 55 investment-grade businesses access a combined £18.8bn of funding. The Bank of England has also authorised a further £38.8bn of potential lending to another 68 businesses that make large contributions to the economy.
But today (May 19), Threadneedle Street said that any corporate wanting to access the scheme, for a term extending beyond May 19 2021, will be expected to write to the Treasury, committing restraint on the payment of dividends, other capital distributions and “on senior pay during the period in which their commercial paper is outstanding.”
The CCFF will continue access to the scheme for businesses that can demonstrate they were in sound financial health as at March 1 2020. It will close to new drawings in March 2021.
The Bank of England also said that businesses which have drawn under the CCFF are now able to repay early if they choose, giving them flexibility to exit where they can access alternative funding, for example in capital markets.
The Treasury and the bank have also decided to publish the names of businesses that have drawn under the CCFF, as well as the amounts borrowed, as of June 4, to increase transparency.
The announcements were made as the Treasury also revealed that 500,000 business are now using government-guaranteed loan schemes.