Coronavirus: More UK crisis loans for big firms — if they scrap dividends

Tom Belger
·Finance and policy reporter
·2-min read
Britain's Chancellor of the Exchequer Rishi Sunak walks to Downing Street in London, Wednesday, May 13, 2020. The British economy shrank 2% in the first quarter of the year from the previous three-month period, the biggest quarterly decline since the global financial crisis of 2008 even though it included just one week of the coronavirus lockdown, official figures showed Wednesday. (AP Photo/Frank Augstein)
Britain's chancellor Rishi Sunak. (Frank Augstein/AP)

The UK government has quadrupled the amount large firms can borrow as part of its coronavirus lending scheme, in exchange for “restraint” on dividends and bonuses.

Britain’s chancellor Rishi Sunak had already rolled out a vast £330bn ($400bn) emergency package of loans and guarantees to protect firms as the UK went into lockdown in March.

The Treasury has now ramped up lending limits from £50m to £200m for large firms, in a fresh sign of the heavy toll on company balance sheets as the pandemic and lockdown drag on.

The latest changes apply to the coronavirus large business interruption loan scheme (CLBILS), aimed at firms ineligible for Bank of England lending as they are not investment grade-rated.

The loans are handled by UK banks but enjoy an 80% government guarantee, in a major transfer of risk from the private to the public sector.

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Lending above £50m comes with strings attached however, including rules on dividends and senior pay. Firms will have to agree not to pay dividends or buy back shares, and offer no cash bonuses or pay rises over and above levels paid over the past 12 months to senior management, including board members. Bonuses and pay offers agreed before the loan was taken out are exempt.

The strings have also been extended to any major firm using the Bank of England’s covid corporate financing facility (CCFF) for more than 12 months.

The Treasury’s conditions appear to be aimed at heading off a potential backlash if large companies, shareholders and executives are not seen to be taking enough of a hit themselves.

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Business leaders welcomed the move. Rain Newton-Smith, CBI chief economist, said: “Some mid-cap businesses urgently need access to larger loans to tide them over at this critical juncture for the economy.

“Many of them are important regional employers, so the Treasury’s extension of maximum loans to £200m shows just how much they are listening to the concerns of business right now.”