Managing short term liquidity impact of COVID-19

It’s been a week now since the enforced COVID-19 restrictions came into force and we don’t need to tell you about the issues everyone is facing at the moment, but we wanted to outline some thoughts on how companies might be able to manage liquidity and selectively draw down on the well-publicised government initiatives.

In the current markets short term liquidity has to be a primary focus for most businesses. It is fair to say that “liquidity is King,” so where there is a liquidity requirement, think carefully about how this money goes into the capital structure. We have useful and relevant experience of this, and we are currently working with banks on live examples and are happy to share our experiences.

From our experience, banks are supporting distressed situations when approached. Generally, there is a belief that these institutions will be difficult, however, many of the funders we are working with are using the current situation as an opportunity to enhance their own images and repair broken relationships. Corporates should use this willingness to their own advantage.

Whilst measures such as VAT breaks and some selective deferral of taxes will help to keep the lights on, and the ability to furlough staff will reduce the fear of permanently losing employees, this is not a medium-term solution.

In our view, more support is needed to assist Mid Market corporates with many of the measures aimed at larger or smaller companies. The below provides some more short-term solutions, though you should be mindful not to damage lender relationships that may be needed for future amendment discussions. We suggest keeping your stakeholders engaged and informed, recognising that they too are getting used to a totally new way of operating under the COVID restrictions.

Draw down RCFEnsuring cash is on balance sheet prior to an Event or Default or other drawstop event. Cash is king - take it whilst you can
Extra interest cost (likely a small price to pay for liquidity).
Don't forget to check the covenant impact - Gross leverage, for example, will increase.
Draw down Capex / Acquisition FacilitiesAs above.The drawdown of RCFs has been well publicised, but other committed facilities should not be overlooked.
It may be possible to fund certain historical capex from a Capex facility, for example.
Review the Purpose and availability / CP clauses of such facilities to check what can be financed.
Extending RCFsEarly discussions with lenders to provide additional liquidity.Banks are talking a good dame about being supportive, but the reality is to be tested and will be dependent on the situation.
Government incentivesTake advantage of grants and loans.Details are still emerging, but some firms may be able to benefit from the initiatives laid out below.
Working capital managementCan creditors be stretched, for example. If stretched significantly, overdue creditors will eventually be captured in borrowings - check Borrowings definitions.
Cashflow forecastingScenarios, scenarios, scenariosCurrent events are unprecedented and there is little visibility over the impact and duration of the downturn. Whilst the immediate impact may be clear, prolonged recession scenarios should be run.

How we can help

Zeus Capital has worked on transactions valued in excess of £8.9 billion since 2013 and has a hands-on approach to supporting companies navigate through turbulent trading conditions

We have an experienced team across corporate finance, debt and equity advisory that can assist you to understand the short- and medium-term funding impact of the current crisis

Zeus Capital has deep relationships across a broad range of both debt and equity providers and can provide totally independent advice on the optimal funding routes available to you.

For advice on responding to COVID-19 as a public company, or to explore public company funding opportunities please contact the team.

We know that the government will be providing updates daily, however we thought it would be useful to include a simple summary of each of the government initiatives, what they can be used for, and where there may be issues.

Summary of government initiatives

Coronavirus Business Interruption Loan Scheme (CBILS)

Facilities of up to £5m for smaller businesses across the UK who are experiencing cashflow disruptions

How can companies make use of this?Companies may wish to generate liquidity by making use of a 12-month interest free rate across a broad platform of financial instruments

Restrictions?: Prescriptive measures of size and location prevent many mid-market companies accessing this funding

  • British Business Bank (BBB) providing guarantees (of up to 80%) on loans of between £1,000 and £5m per business through CBILS, temporarily replacing the Enterprise Finance Guarantee (EFG)
  • Up to six year terms loans and asset finance, and three year overdrafts and invoice finance
  • CBILS offered to SMEs with a ‘sound borrowing proposal’, but who lack sufficient security to meet normal lender requirements.
  • To be eligible, businesses must be:
    • a UK-based SME with annual turnover of up to £45m,  
    • primarily trading in the UK 
    • generating 50% of turnover from trading activity 

COVID Corporate Financing Facility (CCFF)

A corporate finance facility aimed to help larger, financially sound, companies through the economic disruption caused by the coronavirus

How can companies make use of this?: Even companies that have never issued commercial paper are able to participate, and provided that the commercial paper is eligible for the scheme, their bank will assist with issuing commercial paper to the CCFF

Restrictions?: Companies need to be of investment grade already in order to benefit from the initiative – this significantly restricts who is able to benefit

  • CCFF intended to support larger, non-financial firms suffering a squeeze on their cash flow, that would usually seek market-based finance for their working capital and other short-term needs, but are unable to do so in this period of economic flux
  • This facility will purchase newly issued commercial paper with a minimum nominal value of £1m (max. TBC).  Financing will be done on “comparable terms to those prevailing in the market pre COVID-19”
  • To be eligible, firms must:
    • be UK incorporated
    • be investment grade rated by a recognised rating agency
    • have a genuine business in the UK
    • generate significant revenues in the UK
    • serve a large number of customers in the UK
    • have a number of operating sites in the UK

Coronavirus Job Retention Scheme (CJRS) 

A nationwide initiative whereby HMRC will pay an Employer the majority of wages for their workforce who are temporarily not working due to the coronavirus outbreak

How can companies make use of this?: By making an employee ‘furloughed’ instead of making them redundant, companies can retain talent whilst managing short-term liquidity

Restrictions?:  Furloughed employees are still employed, but cannot be doing any work at all, therefore excluding employees who have had their hours reduced.

  • Designed to protect jobs, the CJRS will be available for any employer with a workforce negatively impacted by the effects of COVID-19.
  • Employers will be reimbursed for 80% of the salary for employees who cannot work, up to £2,500 per month. This can be backdated to 1st March 2020 
  • In practical terms, this will mean workers in any part of the UK can retain their job, even if employers can’t pay their salary. The CJRS will be open for at least three months, and could be extended, with no limit on funds

Statutory Sick Pay (SSP) Rebates 

The government will also be providing support by way of rebates on SSP for staff members who decide to self-isolate

How can companies make use of this?: Instead of the employer covering the cost of SSP, it will now be the role of the government, alleviating short-term liquidity pressures

Restrictions: The mechanism for rebates is yet to be decided, but the government will be working with businesses to work this out over the coming months

  • SSP will be available to staff required to self-isolate, without the requirement to obtain a sick note from a doctor and even if they are not displaying symptoms.  
  • Rebates will cover the first two weeks of SSP per eligible employee who has been off work because of COVID-19 
  • An extra £2bn is being made available to up to two million businesses with fewer than 250 employees.  


If you would like further information, please get in touch with our team.

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