The scheme was introduced to assist businesses which were too big to apply for a loan under the CBILS https://www.ts-p.co.uk/news/covid-19-understanding-how-the-business-interruption-loan-scheme-can-help-your-organisation but too small for the investment grade scheme.
The CLBLS, similar to the CBILS, enables loans to be provided by accredited commercial lenders with the UK Government guaranteeing 80% of each individual loan. Loans, up to £200 million, are available to UK-based businesses with an annual turnover of over £45m that can demonstrate that they have been adversely impacted by the Covid-19 pandemic. However, unlike the CBILS, there is no 12 month interest free period or relief from lender-levied fees, therefore a commercial rate of interest will be charged over the life of the loan.
It is worth noting that facilities in excess of £50m are subject to additional requirements; these larger loans are subject to tighter controls restricting the borrower and members of its group from:
- making dividend payments;
- paying management, advisory and similar fees to shareholders;
- carrying out share buy-backs; and
- paying cash bonuses and declaring pay rises to senior management.
Structuring a CLBLS loan may require significant analysis of existing financing structures. Potential scenarios might range from unsecured transactions where there is no need to reach agreement with any other creditor to a CLBLS facility being inserted into pre-existing secured syndicated loan structures where existing lenders will need to renegotiate and accept their new position.
In terms of documentation, the accredited lenders are required to execute a standard guarantee with the UK Government, but there are currently no restrictions on the form of facility agreement which can be used to document a CLBLC, provided that such facility agreement incorporates the requirements of CLBILS. The accredited lenders may wish to use their standard forms and seek the financing terms they deem appropriate for the transaction, which could be more restrictive than the scheme requirements. In particular, accredited lenders are still on risk for the 20% of the loan which is not guaranteed by the Government, and so will want to protect their exposure when structuring any transactions.
The most important requirement of the CLBLS facility is that it must rank at least pari passu – equally- with any other senior obligations, including senior secured obligations, and it must also share in all the collateral taken by any lender from the borrower. However, accredited lenders are prohibited from sharing any amounts received under the CLBLS guarantee with other lenders.
The relationship between lenders is commonly dealt with in an intercreditor agreement. In the circumstances where a CLBILS facility is slotted into or structured alongside other finance facilities the parties should consider the following intercreditor points:
- understanding what is comprised in the relevant security package and ensuring that the accredited lender benefits from a pari passu share of all relevant transaction security;
- ensuring that after the CLBLC facility is entered into there is no ability for the borrower to incur debt that ranks senior to the CLBLC facility;
- ensuring that the rights of repayment before default and other relevant terms of individual finance documents are acceptable in this regard or whether they should be overridden;
- ensuring that procedures for enforcement of security interest and wider enforcement and restructuring action is compliant with the CLBLS requirements
This is only a starting point and the beginning of the discussion around the intercreditor issues and structuring the CLBLC lending. Potentially, where a borrower already has multi-layered financing structures, a thorough analysis of the documents will need to be conducted and amendments requested from the existing lenders in order to comply with a different regime set out in an intercreditor agreement.