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

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