Cayman Islands: Asset Finance


The Cayman Islands has become the leading offshore jurisdiction for the citing of offshore owner/lessor/securitisation SPCs in asset finance transactions. We believe that over the last ten years, approximately, 20% of the output of the principal two long range commercial aircraft manufacturers are financed through Cayman Islands structures.


The typical offshore structure vests ownership of the aircraft with an SPC which acquires the aircraft through funding by way of loan from the lender. The aircraft is then leased to the airline. The SPC would typically be established as an off-balance sheet vehicle with its issued share capital held by an off-shore trust company on charitable trust. The lender will take security over the aircraft, over the SPCs rights as lessor and usually over the issued share capital of the SPC itself.

Why offshore?

The attraction of the structure from a lenders perspective is as follows:

  1. Ownership of the aircraft does not vest with the airline but with an SPC owned and controlled by a trust company which holds title in an off-balance sheet capacity. Ownership therefore vests in a vehicle which is unlikely to be hostile to the lender in a default scenario when the lender seeks to enforce its security. From the lender's perspective this ownership arrangement provides the lender with advantages that are closer to those that would come from retaining title to the aircraft itself whilst avoiding the consolidation of the aircraft on its own balance sheet. The assignment by the SPC of its rights under the lease with the airline will also give the lender effective control of the enforcement of the SPCs rights as against the airline under the lease.
  2. In the event of a default, if the lender seeks deregistration in the airline's jurisdiction the lender should be able to count on the exercise of the owner's deregistration rights rather than having to rely solely on a mortgagees rights. Certain jurisdictions do not recognise the mortgagees right to deregister and may otherwise limit the mortgagees remedies (for example to a local judicial sale) thus making exclusive reliance on a mortgagees rights potentially unsatisfactory.
  3. The principal loan and security documentation will be entered into by the SPC rather than by the airline, thus avoiding potential enforcement problems in the airline's own jurisdiction where the legal system may be very different from the English or American system. The Cayman Islands, for example, is a common law jurisdiction (where English common law will be of persuasive authority) and the basis legal framework will be instantly recognisable to the English practitioner. The "unfamiliar legal system" consideration alone has led to the offshore structuring in the Cayman Islands of transactions for airlines in the People's Republic of China where the relevant airlines have been permitted to establish the SPCs as on balance sheet vehicles.
  4. In addition to legal certainty, ownership of the aircraft will be in a jurisdiction with political, economic and social stability which may give comfort to a lender in cases where the airline is based in the jurisdiction where this is an area of perceived risk.
  5. Ownership of the aircraft will vest in a bankruptcy-remote structure which should be unaffected by the bankruptcy of the airline, thus avoiding the significant difficulties that could arise if title to the aircraft vested with the airline directly or in a special purpose subsidiary or affiliate established by it.
  6. Taxation, or more properly the absence of taxation, and therefore the absence of withholding tax on account of any charge to tax is the principal reason for establishing the SPC in an offshore jurisdiction. The Cayman Islands currently have no legislation that provides direct forms of taxation. Accordingly the adoption of an offshore leasing structure in the Cayman Islands is entirely tax neutral. In order to give comfort that the no-tax regime will continue, the SPC may obtain from the Cayman Islands Government a guarantee against the imposition of future taxation, known as the "undertaking as to tax concessions", which undertakes to exempt the recipient SPC and its shareholders from most forms of taxation if introduced in the Cayman Islands during the relevant period. The undertaking is usually issued for a 20 year period but this may be extended to up to 30 years where required for a particular transaction. Thus, the lender may be assured not only that the SPC structure will not involve adverse tax consequences based on current legislation but that that will remain the situation for the duration of the transaction.

    Ownership of the SPC

  8. The issued share capital of the SPC (typically nominal) will be registered in the name of a local trust company as trustee of a charitable trust established pursuant to a declaration of trust executed by the trustee. From a corporate perspective the SPC is not consolidated with the lender, the airline or the trustee. The trustee will usually be the same entity that serves as administrator.
  9. Typical powers or discretions included in the charitable trust would restrict any disposition of the shares of the SPC or its winding up. These tend to be drafted as provisions prohibiting the trustee from taking such actions without the consent of the lender. This is usually not thought to be a degree of control that would give a lender control or consolidation issues in its home jurisdiction.
  10. Following the termination of the transaction the trust will terminate and the trust property (namely, the net asset value of the SPC, which will be the issued share capital and any transaction fees earned by the SPC net of expenses) will be distributed by the trustees to such one or more charities.
  11. Management

  12. The SPC will enter into an administration or management agreement, usually with the trustee as administrator. The agreement will set out the services to be provided by the administrator to the SPC. The principal service will be to provide directors and officers. It may be convenient to include the lender as an additional party to this agreement to take covenants from the administrator in respect of the business and management of the SPC which the lender may then enforce.
  13. As a commercial matter, the lender should not be so aggressive in its demands to control the SPC that it risks the SPC being regarded as a nominee or agent of the lender and disregarded as a separate legal entity, or that it falls within controlled foreign company legislation in the UK or within equivalent legislation in other jurisdictions.
  14. If there is no other provision in the transaction documentation to meet the SPC's ongoing fees and expenses (for example, through the payment of additional rent under the lease) the airline (which is usually the party responsible for meeting offshore costs) may be included as an additional party to the administration agreement to provide an expenses undertaking.
  15. Security Package

  16. The SPC will usually grant security over the aircraft in the form of a mortgage and will always grant security over its rights under the lease with the airline which will allow the lender to enforce directly the rights of the SPC as against the airline on a default. The SPC will typically also grant a deregistration power of attorney permitting the lender, acting in the name of the SPC, to deregister the aircraft on a default. A Cayman Islands law governed power of attorney when granted to secure an obligation owed to a lender will be irrevocable until that obligation is discharged.
  17. Frequently, the lender will also take security over the issued share capital of the SPC which will give the lender the ability to take control of the SPC on a default.
  18. The share charge granted by the trustee of the trust will differ in a few respects from a security granted by a parent in respect of its on-balance sheet subsidiary. These differences reflect that the trustee's role is that of a service provider rather than a commercial transaction party. It also reflects that a default is likely to be triggered by a default by the airline rather than by any default on the part of the SPC or the trustee. These differences will include a provision that each party will bear its own expenses rather than imposing an obligation on the part of the administrator as chargor to meet the expenses of the lender. It is also inappropriate to place on the trustee any obligation, whether as primary obligor or as guarantor, in respect of the SPC's payment obligations.
  19. The trust arrangements in respect of the issued share capital of the SPC will need to accommodate the security either by express permissive provisions or by the "flawed asset" approach providing that the shares are settled on the trust subject to the security.
  20. As an alternative to security, the lender may consider a call option arrangement requiring the trustee to transfer the shares to the lender on request and usually on payment of par value.
  21. Limited Recourse and Commercial Benefit

  22. The SPC is a corporate entity and its directors will be subject to the typical common law fiduciary duties. Of primary relevance here is the duty of a director to act in what he believes to be his SPC’s commercial interests.
  23. In determining the level of benefit or fee payable to the SPC the directors may be expected to undertake the usual risk-reward analysis: that is, the directors will want to satisfy themselves that the profit opportunity or fee payable to the SPC is commensurate with the perceived risk assumed.
  24. The importance of directors’ duties for the other transaction parties is well established in common law jurisdictions. The risk is that other transaction parties, if fixed with actual or constructive knowledge of any breach of duty, may find themselves unable to enforce their contractual rights as against the SPC at the instigation of a liquidator or third party creditor.
  25. The solution, which avoids either a breach of duty or the payment of significant transaction fees to the company to balance the commercial risk of the assumption of open-ended loan repayment obligations, is to limit those obligations both in amount and recourse to the value of the security granted. As the SPC will grant security over all its material assets (namely, the aircraft and its rights under the lease) the lender is not being deprived of recourse against any significant asset. As the potential or theoretical downside to the SPC is limited to the loss of assets it would not have had had it not participated in the transaction and with no prospect of insolvency, the directors typically take the view that a modest transaction fee is appropriate.

  27. The Cayman Islands also sees significant numbers of on-balance sheet subsidiaries established for onshore banks and leasing companies for finance and operating lease structures and for warehousing arrangements.
  28. The Cayman Islands is the jurisdiction of choice for many innovative structures including ownership and leasing through trust structures, exempted limited partnerships (securing pass-through tax treatment and favourable capital tax allowances for limited partners).


The Cayman Islands is a popular jurisdiction for the registration of private aircraft.


The Cayman Islands is a popular jurisdiction for the registration of ship owning companies, whether those ships are flagged in the Cayman Islands or elsewhere.

The Cayman Islands is a popular jurisdiction for the establishment of joint venture vehicles for the financing, ownership and chartering of commercial tonnage, including VLCCs, through corporate or trust structures.

The port of George Town, Grand Cayman, is a port of British registry offering the attractions of British registration in a tax neutral environment. The port of George Town is a leading port of registry for private "mega-yachts" in addition to commercial tonnage.


The Cayman Islands is the jurisdiction of choice for the establishment of securitisation vehicles for industry members including the securitisation of rental income from aircraft leasing portfolios and credit card receivable securitisations from airline ticket sales. The rating agencies are comfortable and familiar with the rating of debt issued by Cayman Islands SPCs, the local capital markets industry being another cornerstone of the Cayman Islands financial industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions