Govt to offer 50% credit cover

The government’s Department for Business, Enterprise & Regulatory Reform will offer to cover up to half of credit insurance payouts with an overall claims cap of £5bn, The Times has claimed.

The scheme will be offered to medium-risk companies whose cover has been reduced but not withdrawn entirely. The Government will underwrite half a potential payout and the credit insurer will cover the other half. The credit insurers will administer the plans, which will probably cost more than ordinary policies.

John Cridland, the deputy director-general of the CBI, told The Times: “For the companies affected, this is as big a problem as the credit crunch has been for the banks. It is particularly significant for the manufacturing supply chain.”

Meanwhile the FT reported that food distributor Brake Brothers became the latest private equity-backed business to rail at a credit insurer’s decision to withdraw cover from some of its suppliers.

Matthew Fearn, finance director said: “I am absolutely furious. I have spent the last three weeks speaking to people when I could have been doing more profitable things. We had a good growth strategy in 2008 and strong cash flow, and we don’t have to refinance the business for a few years. But I have had to spend countless hours trying to justify this to people.”

Coface pulled cover from the business, while Euler Hermes has reduced its cover. Atradius is still providing the food distributor’s suppliers with insurance against goods supplied after what one person close to the company described as “constructive talks”. None of the insurers would comment about the situation.