Cayman Islands: Securitisation In The Cayman Islands

Last Updated: 3 November 2003

By James Bagnall and Michael Johns

The use of offshore special purpose vehicles ("SPVs") in securitisation transactions is a long- established practice. The Cayman Islands continue to enjoy a dominant role in this field, which they have attained by offering the following key legal, political and professional elements that arrangers, originators and investors seek out:

(1) a cutting-edge legislation (the result of close co-operation between the public sector and government), a creditor-friendly legal system based on English common law, recognition of foreign law-governed security interests and the absence of direct or indirect taxation;

(2) a stable political and economic environment, the result (in part) of the Cayman Islands’ status as a British Overseas Territory, which has supported the AAA rating of Cayman Islands SPVs by international rating agencies; and

(3) the availability and selection of top-flight professionals and service providers, trained in the leading North American and European financial centres, to provide initial and on-going support to Cayman Islands SPVs.

The combination of these factors have made the Cayman Islands the location of choice for structuring all types of cross-border securitisations.

Overview of a Securitisation Structure

Securitisation structures are many and varied but certain elements are common to all. In its most simple form a securitization structure involves the sale of income-generating assets by an originator to an SPV established, usually by an investment bank or other financial institution, specifically for that purpose. The SPV finances the acquisition of the assets by the issue of debt securities ("Notes") or equity securities or both. The cash flow derived from those assets services payment obligations under Notes and distributions on equity securities. The eventual redemption or sale proceeds of the underlying assets will be used by the SPV to repay the principal on Notes upon maturity and to redeem equity securities.

The SPV creates fixed and floating charges over the purchased assets, the accounts into which the receivables deriving from those assets are paid, and all of the SPV’s other property, undertaking and assets, to secure its obligations in respect of the Notes. This security is granted in favour of a security trustee for the benefit of the holders of Notes, any guarantor and the providers of any other credit enhancement (usually a swap counterparty). The transaction is invariably structured on a limited recourse basis so that the liability of the SPV is limited to the secured assets and their proceeds of realisation.

Formation of the SPV

The SPV in a typical structured finance transaction is incorporated under the Companies Law (2003 Revision) as an exempted company limited by shares, and the remainder of this article refers to an SPV in that form. The incorporation process is very straightforward. No governmental authorisations or licences are required for the formation of the SPV which can, if necessary, be set up within twenty-four hours. Government fees, based on the authorised share capital of the SPV, are payable upon incorporation, and at the beginning of each calendar year thereafter. Most SPVs are set up with an authorised share capital of US$50,000 or less to qualify for the minimum registration fee of US$574 (the maximum fee is US$1,722). The share capital of the SPV may be denominated in any currency and there are no minimum requirements in respect of issued or paid up capital.

Constitutional Documents

The constitution of the SPV is contained in two documents, the Memorandum of Association and the Articles of Association.

The Memorandum of Association contains the name of the SPV, the location of the registered office, details of the authorised share capital and details of the objects and powers of the SPV. These objects and powers may be listed, in full and limited to those listed or expressed to be unrestricted and give the SPV full power and authority to carry out any object not prohibited by law. Typically, the corporate powers and objects will be restricted, particularly where the securities issued by the SPV are to be rated.

The Articles of Association govern the administration of the SPV. They contain details of the rights attaching to shares and the manner in which those rights can be exercised, provisions governing the issue, transfer and redemption or repurchase of shares, the appointment and removal of Directors, the powers and duties of the Directors, the proceedings of the Directors, declaration and payments of dividends and rights on dissolution.


The SPV need only have one shareholder, who need not be resident in the Cayman Islands. In the case of a typical off-balance sheet SPV, the shares of the SPV are held subject to charitable trusts by a Cayman Islands trust company which will also provide directors and administrative services to the SPV. As an alternative to the charitable trust, it is possible to establish a purpose trust, under The Special Trust (Alternative Regime) Law 1997, to hold the shares of the SPV.

Corporate Formalities

The SPV must be run as an independent entity to avoid the risk of a court piercing the corporate veil and treating it as an agent of the originator of the transaction. Furthermore, the directors of the SPV owe fiduciary duties and duties of skill and care to the SPV, and must act in good faith and in its best interests. It is therefore important that the corporate formalities of the transaction are properly documented with full board minutes setting out the terms of the transaction, the potential liabilities of the SPV, the manner in which they will be satisfied or discharged and the benefit accruing to the SPV (usually in the form of a transaction fee).

The SPV is required to maintain a registered office in the Cayman Islands, provision of which is normally part of the administrative services provided by the trust company, and to maintain registers of directors and officers, shareholders and of mortgages and charges granted by the SPV over its assets. The only public registration requirements relating to mortgages and other security interests in the Cayman Islands relate to certain personal chattels, ships and aircraft registered in the Cayman Islands and real estate located in the Cayman Islands.

Continuing Requirements

The continuing requirements for a Cayman Islands exempted company are minimal. An exempted company must file an annual return, together with the appropriate annual filing fee (described above) with the Registrar of Companies. The annual return simply confirms that the requirements of the Companies Law as far as they relate to exempted companies have been complied with and that the SPV has conducted its operations mainly outside the Cayman Islands. The SPV must notify the Registrar of Companies of any changes to its constitutional documents, its registered office or its directors and officers.

Publicly Available Information

The only information which is publicly available from the Registrar of Companies in relation to an exempted company is the type of company (i.e. exempted), the location of its registered office and whether the company is active, is in liquidation or has been dissolved.


The SPV not required to have its accounts audited nor do any accounts need to be filed with any Cayman Islands authority. However, it is required by the Companies Law to keep books of account which give a true and correct view of its affairs. The accounts need not be kept in the Cayman Islands.

Tax and Exchange Controls

The Cayman Islands is a tax-neutral jurisdiction and therefore does not impose any direct taxes on the SPV or the Noteholders or indirect taxes by way of withholdings on payments made on Notes or equity securities issued by the SPV. This is supported by an undertaking given by the Cayman Islands Government that the exempted company will not be subject to any tax imposed by any law enacted in the Cayman Islands for a period of at least twenty years from the date of the undertaking. This undertaking may be renewed, if necessary, usually for a period of a further ten years. There are no foreign exchange controls in the Cayman Islands.

Offering of Securities

There are no requirements that a prospectus be filed with any public body in the Cayman Islands in connection with any offer of securities, unless those securities are to be listed on the Cayman Islands Stock Exchange. An SPV which is an exempted company may not, unless it is listed on the Cayman Islands Stock Exchange, make any invitation to the public in the Cayman Islands to subscribe for its securities. For these purposes, the public in the Cayman Islands does not include another exempted company or an ordinary non-resident company incorporated in the Cayman Islands.

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