Home News FIS News Coronavirus: £330bn fund ‘may be closed to most contractors’

Many larger contractors may not meet the financial criteria to access the government’s Covid-19 Corporate Finance Facility (CCFF), experts warn.

Yesterday, chancellor Rishi Sunak announced £330bn of government-backed loans would be made available to support businesses facing cashflow problems. “The interventions I am setting out will help support businesses of all sizes, so they can continue operating during these unprecedented times,” Sunak said.

The Bank of England will operate one facility for larger firms with turnover of more than £41m. But a spokeswoman has confirmed to Construction News it will only be open to companies that are “investment grade”. Investment grade means a company meets a BBB rating by bond rating agency Standard and Poor, or equivalent from other rating houses, and signifies a relatively low chance of the company defaulting on its debt. Finance experts fear that many contractors may fall short of this mark.

Chris Davies, director of surety broker DRS Bond Management, said: “If you look at the majority of [construction] companies on public bourses [stock exchanges] they are sub-investment-grade status.” He added: “If they [the Bank of England] are saying to be eligible for the loan that a company needs to be [investment grade] or equivalent, that rules out pretty much the entire construction industry perhaps with the exception of Balfour Beatty [and] Morgan Sindall.”

Construction Products Association economics director Professor Noble Francis said housebuilders would probably meet the bank’s criteria, but agreed that most contractors would struggle. He added that the bank must avoid the delays in getting financing to companies in need. He said: “In terms of the £330bn loan guarantees, the key issue will be the speed of getting the loans through, even for eligible firms. These issues occurred in 2008 as the financial crisis unfolded but this is a far quicker shock. Most firms will not know about them and even for those that do, the admin will take time to process, time that firms with few assets have when they’re in trouble.”

Davies said the £330bn announced yesterday was likely to be “the tip of the iceberg” in terms of support the government will need to provide for the economy. The construction industry will need further help. “With construction contributing £1 in nine directly into the economy it’s a clear candidate [for support],” he said. “The government needs people to keep building things. We’re not going to not have a housing crisis because of the coronavirus and we’re not going to have new infrastructure built because of the coronavirus. So the construction industry is needed.”

A loan facility for smaller companies with turnover up to £41m will be operated by the British Business Bank. The bank has said firms will be eligible if they “have a sound borrowing proposal but insufficient security to meet a lender’s normal requirements”. Further details on the scheme are expected later today.

Finishes and Interiors Sector trade body chief executive Iain McIlwee said firms welcomed the government’s initial announcement but said more needs to be done to help the sector.  “I think what the chancellor doing is pragmatic and he’s moving in the right direction. Maybe there will be a scaling of help, advice and support is going to become available,” he said.

McIlwee also echoed the view of Mace boss Mark Reynolds who told CN today that keeping sites open for as long as possible was crucial for the industry now.

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