COVID-19 - Current debt landscape

22 May 2020

The situation created by COVID-19 is both unprecedented and continually evolving. Businesses across the UK are seeking to minimise the financial impacts of the crisis. We would encourage management teams to be asking themselves the following key questions:

  1. Do we have sufficient liquidity headroom in both the short, medium and longer term?
  2. Are we utilising all of the government schemes that we are eligible for to their maximum effectiveness?
  3. If we have sufficient short term liquidity, have we performed adequate scenario planning to consider our exposure in the medium to long term?
  4. Are we in compliance with the terms of our financing arrangements and does it offer sufficient headroom?
  5. Have we considered our various funding options to mitigate the financial impact of Covid-19, such as:
  • Utilising the various Government Schemes that we are eligible for to their maximum effectiveness;
  • Amending the terms of our existing financing arrangements; and
  • Raising new facilities to create additional headroom and potentially act as a form of ‘insurance policy’.

For our mid-market clients, the government has provided support through Coronavirus Business Interruption Loan Scheme (“CBILS”) and Coronavirus Large Business Interruption Loan Scheme (“CLBILS”). Below we cover the eligibility criteria, features, success rates and accessibility of the two schemes including its applicability to Private Equity portfolio companies.


The aim of CBILS to soften the economic impact from the COVID-19 pandemic.  It offers:

  • Loans delivered by accredited lenders to UK SMEs, backed by guarantees from the British Business Bank of up to 80% of the loan
  • Loans, overdrafts, invoice finance & asset finance of up to £5m for up to six years
  • Interest and fee free for the first 12 months
  • Eligibility:
    • Businesses of up to £45m turnover
    • UK based business which would have been viable pre COVID-19.


It was reported by HM treasury that lenders approved 50% of 81,124 application received totalling £7.25bn of CBILS facilities in the period up to the 17th May 2020.  This low success rate is a result of a number of factors including:

  1. Significant backlog in applications meaning lenders are having to prioritise those businesses with immediate cash requirements and reallocate resource.
  2. There have been some misunderstandings around the eligibility criteria leading to a large number of inappropriate applications
  3. Lenders have to walk a tightrope between supporting their clients and remaining commercial. These commercial considerations include:
  • Ensuring they do not invalidate the government guarantee by inappropriately interpreting the eligibility criteria; and
  • Considering the credit on its merits as they retain a 20% exposure to losses.


CLBILS was introduced to support UK mid-cap and larger enterprises with turnover in excess of £45 million during the COVID-19 outbreak. It enables companies with turnover up to £250m to access facilities up to £25m, and larger companies to access up to £50m.

The amount borrowed should not be greater than (i) double the annual wage bill, or (ii) 25% of total turnover, or (iii) with appropriate justification, the amount may be increased to cover their liquidity needs for the next 12 months. 

Unlike the smaller CBILS scheme:

  • The maximum repayment term is 3 years
  • Banks lend at commercial rates of interest and there is no interest or fee free period
  • Banks pay a fee for the government guarantee and this will have pricing implications.

The CLBILS scheme launched on 20 April 2020.  It was reported by HM treasury that lenders approved only 17% of the 496 applications received totalling £0.59bn of CLBILS facilities in the period to 17 May 2020.  It was perhaps not a surprise to see CLBILS success rates noticeably lower than CBILS because while lenders face the same challenges (as discussed above), the increased cheque size (and therefore risk assumed by lenders) is higher in a single name and will therefore make lenders more thoughtful.


The Government announced on the 19 May 2020 that it plans to extend the maximum CLBILS loan size from £50m to £200m to help ensure those large firms which do not qualify for the Bank of England’s Covid Corporate Financing Facility (CCFF) have enough finance to meet cashflow needs during the outbreak.  Borrowers under CLBILS will be able to borrow up to 25% of turnover, up to a maximum of £200 million.

Companies borrowing more than £50 million through CLBILS will be subject to the following restrictions:

  • Dividends: Borrowers cannot make any dividend payments other than those that have already been declared
  • Share buyback: Borrowers agree not to make any share buybacks
  • Executive pay: Borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where they were a) declared before the CLBILS loan was taken out, b) is in keeping with similar payments made in the preceding 12 months, and c) does not have a material negative impact on the borrower’s ability to repay the loan.

The expanded loans, which have been introduced following discussions with lenders and business groups, will be available from 26 May.


In response to the CBILS low success rates the Government announced a new Bounce Back Loan scheme on the 27 April 2020.  This scheme will help small and medium-sized businesses affected by COVID-19 to apply for loans of between £2,000 and £50,000.

The Government will guarantee 100% of the loan and there will be no fees or interest to pay for the first 12 months. Loan terms will be up to 6 years. No repayments will be due during the first 12 months. The government will work with lenders to agree a low rate of interest for the remaining period of the loan.

It is available to any UK based business negatively impacted by COVID-19 that was not an ‘undertaking in difficulty’ on 31 December 2019 and not already claiming under CBILS. 

The Bounce Back Loan scheme launched on 4 May 2020.  It was reported by HM treasury that lenders approved 80% of the 581,516 application received totalling £14.18bn of CBILS facilities in the period up to the 17 May 2020. 


We recommend companies approach their incumbent lender to access the schemes, as they remain primarily focused on supporting existing clients. 

To improve the chances of success and speed of implementation, CBILS and CLBILS funding requests should:

  • Robustly demonstrate financial viability of the business pre-COVID-19
  • Set out a credible business plan that incorporates management’s actions to mitigate the impact of COVID-19 (e.g. cost savings, TTPA and/or JRS)
  • Credibly present how the Company will recover to financial health and be capable of servicing the debt structure in 2021 (certain lenders are suggesting plans that assume recovery during H2 2020 and normal trading in 2021).

As discussed previously, CLBILS significantly increases lender exposure compared to CBILS and this has resulted in a higher level of scrutiny over new lends. Consequently, there is a greater need for applications to clearly demonstrate how the business addresses the eligibility criteria, sells the credit story and presents a robust business plan that can withstand challenge.

BDO Debt Advisory would be delighted to assess loan scheme eligibility & support the application process. We have considerable know how in selling a credit story, presenting robust business plans and addressing the eligibility criteria.


There continues to be uncertainty around the eligibility of PE portfolio companies for CBILS. On the 5th May 2020 the BVCA released survey results covering 63 different GPs that suggested only 60 of their portfolio companies had successfully accessed the CBILS and 7 successfully accessed CLBILS.  A number of banks continue to work positively to find commercial solutions outside of the government loan schemes and currently see them as an unwelcome distraction for sponsors.

Despite subsequent tweaks to the CBILS eligibility criteria (clarifying that group turnover only relates to the company and not the rest of the portfolio within the fund) and the introduction of CLBILS on the 20th April 2020, certain issues blocking PE backed businesses from accessing the loan schemes appear to remain in place.

The key constraining issues are the result of EU State Aid regulations whereby the banks are following the EU definition of an ‘Undertaking in Difficulty’. The most prevalent pitfall in the definition being the accumulated losses test. Given this is governed by EU regulations, it may prove challenging to find a workaround.

View our COVID-19 hub