Information for those wishing to participate in the Energy Markets Financing Program (EMFS)
On 8 September 2022, the UK Treasury (HMT) and the Bank of England (the Bank) announced a joint program to address the extraordinary liquidity needs faced by energy companies operating in the UK gas and/or gas markets. electricity. The EMFS was designed to encourage banks to provide additional loans to energy companies to support their ability to meet margin calls generated by potentially volatile energy prices over the following months.
The system has an entry fee aligned with commercial levels, but penalized pricing in the draw to ensure it is only used if commercial and competitively priced funding is not available in the market. If an application is approved by HMT, the Bank will issue a full cover guarantee to commercial lenders which will apply to an additional tranche of a specified existing credit facility to ensure commercial lenders have the capacity to support the UK energy sector .
The scheme is open for applications from October 17, 2022 to January 27, 2023. The benefits provided under the scheme will cover a period of up to 12 months from the date of issue.
This webpage should be read in conjunction with the EMFS Tender Notice for further details. If you have any questions about the program or the application process, please email [email protected]
Eligible energy companies
The EMFS is aimed at companies that play a significant role in the UK gas and/or electricity markets as producers, shippers and/or suppliers. Additionally, only energy companies that make a significant contribution to the gas or electricity markets in the UK will be eligible for EMFS.
The EMFS is only open to energy companies holding an Ofgem licence, or where another entity within the energy company’s group is holding an Ofgem licence.
Energy companies will not be eligible for the scheme if they are ultimately owned by banks or other financial sector entities regulated by the Bank or the Financial Conduct Authority. Energy companies will also be ineligible if they have public entities and/or national governments directly or indirectly owning more than 25% of the issued securities of that energy company and/or exercising direct or indirect control.
To be considered eligible, energy companies must meet a minimum credit rating of BB-/Ba3.
Further details on the EMFS eligibility requirements, including what is needed to meet the material contribution requirement and minimum credit rating, are available in the EMFS Market Notice.
Submit an application
There are three application forms under the EMFS, which can be found below.
Before submitting an application, energy companies should consult with their commercial lenders on how best to approach their application, considering how to prove program criteria.
Form 1 – To be completed by the energy company
Form 1 must be completed by the energy company. It should include details of the credit facility for which collateral is requested. The energy company should have their commercial lender complete Form 2 (and Form 3 if required) and submit it directly to the Bank.
Forms 2 and 3 – To be completed by the commercial lender
2 forms must be completed by the commercial lender at the request of the energy company once they have decided to proceed with an application.
Form 2 includes more detailed information about the commercial lender and the credit facility for which collateral is requested. It is not necessary for the commercial lender to include the utility company in their correspondence with the Bank around this form if they wish to provide the information in confidence.
Form 3 is a one-time form to be completed by the commercial lender. This form binds the lender to the Bank’s application process and disclosure policy and enables the collection of operational information. Form 3 only needs to be submitted once, regardless of the number of energy business applications supported by a commercial lender. Commercial lenders may submit Form 3 to the Bank separately and prior to any specific request from an energy company.
All signed application forms, together with all necessary supporting documents described below, should be sent to the Bank at [email protected]
Documents in support of an application
Along with an application, it will be necessary to submit the supporting documents requested by the Bank. This should include copies of the energy company’s latest financial statements and an organization chart of the energy company’s group (if applicable).
Energy companies must sign the confidentiality and undertaking agreement and submit it with their application form. The Confidentiality and Undertaking Agreement is provided below with guidance on how to provide proof of signatory authority:
The application process
All signed application forms should be sent to the Bank at [email protected]
Once the Bank has received all the required forms, it will make an initial screening before forwarding potential applications to HMT.
HMT will then perform an additional due diligence, during which applicants may be required to provide additional information to HMT as set out in the EMFS procurement notice.
To participate in the program, HMT will require energy companies to agree to certain conditions, the details of which will be set out in a direct engagement letter agreed between the energy company and HMT.
A direct pro forma letter of engagement is available below providing further details of the terms that will apply to all energy companies. A signed letter will be requested from the energy company by HMT during their due diligence phase.
Unless otherwise stated, the terms will apply for 12 months from the time the additional secured tranche of the credit facility is drawn, or until the end of 2023, whichever comes first.
As part of Form 1, the energy company must propose the value of the additional tranche that it seeks to guarantee. HMT will review the request and confirm the agreed limit during its due diligence phase.
The Bank will issue a guarantee to the commercial lender once the Commission has received the Approval Fee and all other steps of the application process have been completed to the satisfaction of the Bank. A warranty template can be found below.
Proof of authority from all signatories will be required. Where a commercial lender is a Sterling Monetary Framework (SMF) participant and the intended collateral signer has already been included on the SMF authorized signer form, no further proof will be required.
Where a commercial lender is not already an SMF Participant, or where intended signers are not included in an existing SMF Authorized Signatory Form, proof of signing authority may be provided as specified in the orientation of signatories which is available below.