Rolls-Royce’s new five-year term-loan facility, underwritten by a syndicate of banks and guaranteed 80% by the UK Export Finance, marks the start of increased ECA activity in the UK aviation sector, according to a person familiar with the transaction.
“You will see a lot more activity in ECA supported finance for aircraft than you have seen, certainty for the past three years. Recently ECAs have said that they expect to see a significant uplift of activity, and if firms want to get speedy response, they need to engage with UK EF now. ”
Roll-Royce’s loan is from a UK EF product called the Export Development Guarantee, which was originally launched in 2014 as the UK government’s response the 2008 financial crisis and was aimed at providing liquidity to SME exporters. In 2019, the UK’s finance minister introduced a General Export Facility (GEF), an expansion of the earlier scheme and intended to help British firms cope with Brexit.
Jaguar Land Rover was the first company to access this product in late 2019 when it agreed a £625 million five-year amortising loan facility backed by a £500 million guarantee from UK EF and the difference between this and other export credit support activities in that it’s intended for general corporate purposes, according to the person who helped structure the Rolls-Royce loan.
“UK EF has subsequently rebranded the JLR facility into the EDG, which is essentially the same as GEF, but aimed at larger sized transactions and exporters. Currently there is a specific requirement for approval from the UK Finance Minister, but the intention is for it to become an off-the-shelf product for UK corporates, so they won’t need Number 11’s approval in future.”
The EDG provides an 80% guarantee by UK EF meaning that if banks have an appetite to lend, say, £100 this can be leveraged up to £500, with £400 underwritten by the UK government enabling lenders to provide more liquidity to the country’s corporate sector. To qualify companies need to meet certain thresholds such having a certain percentage of their sales as exports and a physical UK presence.
“Companies should be manufacturing goods or delivering services or intangibles from the UK. Those are the basic criteria and for Rolls-Royce it’s really a funding diversification opportunity and enables them to tap a source of finance which is available at commercial terms. Any UK company that meets the criteria should address. It makes sense for all companies that this is available to just take it,” they added.