The Bank of England (BoE) is considering establishing a Secured Commercial Paper Facility (SCP) to buy appropriate ABCP as well as creating a specific Supply Chain Finance Facility.
The new proposal for the BoE to purchase certain high-quality ABCP potentially extends the reach of the banks program. As few existing ABCP programs will meet the BoEs criteria and it will take time for tailored programs to be developed. In time, however, additional credit can become available to a wider cross section of companies including those that by themselves would not warrant an investment grade credit rating. The hope is that the BoEs activity will stimulate other investors to buy this type of paper. Companies will need to ensure compliance with any existing covenants on secured finance and equivalents.
The second proposal, for a Supply Chain Finance Facility, could, in a broadly similar fashion, provide financing to companies on the strength of their receivables from a well-rated customer. Larger companies might also be able to do this directly, although smaller companies might need to participate in special purpose vehicles.
Again, structures would need to be carefully created for this. In essence, small companies and those without credit ratings should be able to raise financing that might not be otherwise available and this should be at a lower price than the companies normal short term funding costs.
There are various mechanisms including trade bills and bankers acceptances serving a tools that can be used here. The central bank is currently asking for comments on its proposal for expansion until June 19.