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UK government explores further access to state aid loans for PE-owned businesses

The U.K. government continues to explore whether more can be done to support larger businesses, including those backed by private equity, that do not qualify for coronavirus loans under European Union state aid rules.

Following industry and government lobbying, state aid rules were amended July 30 to allow businesses classed as "undertakings in difficulty" — those unable to pay debts as they fall due — with fewer than 50 employees and a turnover of less than £9 million to apply for a guarantee-backed facility of up to £50 million, under the Coronavirus Business Interruption Loan Scheme.

Private equity-owned businesses often have high levels of debt on their balance sheets to reduce their tax bill, even if they are cash-generating. As a result, they fail the "undertaking in difficulty" test and the government is unable to extend support under EU state aid rules.

"While recent changes to state aid rules mean more small businesses can access the Coronavirus Business Interruption Loan Scheme, we recognize that some viable larger businesses may still be classed as undertakings in difficulty. We are continuing to explore whether more can be done to support these businesses within the parameters of EU State Aid rules," a government spokesperson said in an email.

The Business, Energy and Industrial Strategy department is considering how to help private equity-backed businesses that employ large numbers of people without breaching EU rules, the Financial Times reported Aug. 17, citing four people involved in the process. Those people noted there is no guarantee the government will find a solution.

An extension of U.K. state aid loans to large, private equity-backed businesses would enable those in the retail industry to better cope with the fallout of the coronavirus pandemic, according to an adviser to the private equity industry.

Mark Fine, a finance partner at McDermott Will & Emery, said the potential extension of the Coronavirus Large Business Interruption Loan Scheme to private equity-backed businesses would be welcomed, especially by those operating in the retail sector, which has been one of the hardest hit industries during the pandemic. "Should some of these businesses be able to access state-backed capital as a sole funding source or in conjunction with new money provided by third party creditors and/or shareholders it may well allow them to weather the storm," Fine said.