Tuesday 31 March 2020 6:00 am

Coronavirus: Ratings agencies see demand surge as firms try for BoE cash

Ratings agencies have reported a surge in demand from UK companies as firms try to secure credit ratings that would let them access the Bank of England’s coronavirus bond-buying scheme. However, a significant number of firms expressing interest do not qualify for the money, agencies said.

S&P Global Ratings said it has received around 30 enquiries so far from UK firms that hope to be rated “investment grade” so as to be able to access the BoE’s covid corporate financing facility (CCFF).

Read more: Government launches £330bn coronavirus business loan scheme

The CCFF is one of the key programmes in the UK’s economic response to coronavirus. It will see the BoE buy up companies’ short-term bonds, easing their need for cash. To access the facility, firms must be deemed to have been investment grade – at low risk of default – on 1 March.

But S&P’s head of EMEA sales Lynn Maxwell told City A.M. that “less than 25 per cent” of the firms expressing interest “have investment grade potential”. She added that it is “early days,” however.

Fitch Ratings’s president Ian Linnell told City A.M. that his agency has seen a “very big pickup” in interest from firms hoping to access the CCFF. Yet he said that only around 75 to 80 per cent of companies who have contacted Fitch would qualify.

The figures come as concerns rise that some businesses in the UK are slipping through cracks in the government’s range of coronavirus support schemes as they cannot access the CCFF but are too big for other programmes.

Read more: Freshfields and Slaughter and May advise government on covid corporate finance facility

The government has faced criticism over the terms of the CCFF, under which the Bank will buy companies’ short-term debt (known as commercial paper) on terms similar to those in the market before the Covid-19 pandemic.

Initially, the BoE said companies had to be rated investment grade by S&P, Moody’s, Fitch or DBRS Morningstar. On Thursday, however, chancellor Rishi Sunak said lending banks could also judge a companies’ creditworthiness. The ultimate decision will lie with the Treasury.

Jump in demand for credit ratings

S&P, Fitch, Moody’s and DBRS Morningstar all reported an increase in demand for credit ratings from UK firms hoping to access the CCFF.

Linnell said interest has risen as the economic picture has worsened. “It’s just been bad news after bad news, so it’s not surprising that momentum or interest around the scheme is building quite rapidly,” he said.

DBRS Morningstar’s head of European business development Marta Zurita said the agency has “registered a significant number of enquiries from corporates, bankers, advisors, and other market participants” for the facility.

Linnell said that many firms are applying for ratings speculatively, which goes some way to explaining why many of those expressing interest do not qualify for the CCFF.

“A lot of companies are just trying,” he said. “There are three or four government schemes in place and [firms are thinking] I’m going to apply for them all and see which ones I end up getting.”

Sunak has said he is working to ensure all companies get the help they need. Yet business groups yesterday were still concerned that some firms cannot access the CCFF but are too big for other programmes such as the coronavirus business interruption loans scheme (CBils). 

Tej Parikh, chief economist at the Institute of Directors, said: “We’re still hearing reports that money isn’t reaching the frontline as fast as it might.” He added: “It’s vital the government continues to iron out the creases in its support package.”

Read more: Government’s coronavirus business interruption loan scheme ‘not fit for purpose’, says consultancy

Rain Newton-Smith, chief economist at the CBI, said: “The chancellor’s reassurance last week that Treasury are working on creative solutions was welcome.” But she added: “There are still those slipping through the cracks.”

City A.M. understands demand for lending under the CCFF has been high. The Bank of England will publish official figures on Thursday.