MNI INSIGHT: BOE Commercial Paper Facility Only First Step

-Secured Commercial Paper, Supply Chain Support Likely Next

By David Robinson

     LONDON (MNI) - The new joint Bank of England and Treasury scheme to

purchase unsecured commercial paper will initially be fairly limited in scope

but it looks sure to be only a first step, with the next step likely seeing it

extended to smaller firms and to support supply chain finance.

     The commercial paper scheme allows the BOE to buy commercial paper of up to

a year's maturity from investment grade firms. Back in 2009, however, the Bank

launched a commercial paper facility which allowed it to buy securities backed

by assets such as trade receivables and the new scheme looks set to be extended

in a similar way.

     The new scheme, entitled the Covid Corporate Financing Facility, is limited

to paper issued by investment grade firms. The BOE, underwritten by the

Treasury, will provide the firms financing at rates similar to those in place

before the virus hit.

     The CCFF will provide "Very cheap, very accessible financing for slightly

larger companies," Treasury head Chancellor of the Exchequer Rishi Sunak told

lawmakers Wednesday. The sterling commercial paper market is small by

international standards, with stock amounting to only around GBP3 billion.

     The CCCF formed part of the headline-grabbing GBP330 billion loan and grant

scheme unveiled by Sunak Tuesday but even if the BOE bought the entire current

market it would only make up a sliver of the total package.

     The Bank's operational notes issued Wednesday stress, however, that the

CCCF can be extended and that it will accept newcomers to the market, signalling

the Bank's desire to see the sterling commercial paper market grow.

     "The scheme will operate for at least 12 months and for as long as steps

are needed to relieve cash flow pressures," the note said, adding that "The Bank

and HMT (the Treasury) will keep under review whether to propose any extensions

or variations of the Facility in the future."

     --TRADE RECEIVABLES

     A likely next step for the BOE and the Treasury is to extend the facility

to cover secured commercial paper.

     These securities could be backed, as they were in 2009, by assets such as

trade receivables, that is the record of amounts that will be received by a

business on the completed sale of goods or services.

     The provision of funds by the BOE in return for paper backed by trade

receivables would allow, for example, importers delivering goods through a

supply chain and facing extended delays to issue paper and get funding from the

Bank.

     New BOE Governor Andrew Bailey told lawmakers that it was reasonable to

expect something to support supply chain finance, and an extension of the CCFF

is one way it could do so.

     The commercial paper facility does not come under the aegis of the Monetary

Policy Committee but instead fall under the markets side of the Bank, with

decisions taken by the Bank executive. Any extension of the CCCF, therefore,

will not be part of the MPC's upcoming March 26 policy decision.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$,MFB$$$,MGB$$$]