Bermuda: Financing In Bermuda

Bermuda's reputation as an established international finance centre is well known. Its development over the last 60 years into a dominant (re)insurance venue, and the growing number of investment opportunities available to international investors capitalising on low interest rates, currency fluctuations and distressed assets, has led to the increased use of Bermuda vehicles across a wide spectrum of financing transactions.

Bermuda's flexible, commercial legislative approach is supported by a clearly-developed, English-based legal system. Politically stable, tax-neutral, and an early adopter of international transparency and compliance standards, Bermuda creates a business-friendly environment, allowing companies to access high-quality capital, while protecting investor and creditor rights.

The use of Bermuda vehicles, with a recognised ownership and corporate governance structure, can often enhance opportunities for international companies to access capital efficiently. Bermuda's support for the Lloyd's of London and US insurance markets results in the issue of numerous investment-grade working capital, revolving and standby letter of credit facilities documented under English or New York law, supported by Bermuda law share and/or asset security. More recently, we have seen growth in multi-jurisdictional credit reinsurance facilities, which combine elements of fund financing (including pledges over capital calls) with traditional reinsurance structures.

Bermuda vehicles have also become a common feature of high-profile commercial property secured financings in the London market – particularly with respect to acquisitions by non-UK investors – raising significant sums at the development stage and at subsequent refinancing. The recent sale of The Leadenhall Building (aka 'Cheesegrater') for over £1bn is just one such example.

KEY FINANCING FEATURES

In a typical international financing transaction, Bermuda vehicles act as borrowers, guarantors and/or third-party security providers. Such vehicles are generally incorporated as exempted entities. Exempted vehicles are not subject to stamp duty on international loan and security documents (other than in respect of transactions relating to certain Bermuda property), nor are they subject to exchange control or currency restrictions.

Bermuda vehicles can grant guarantees without restriction or limitation, subject to any specific restrictions in their constitutional documents.

Security packages commonly comprise: (i) charges over the assets of a Bermuda obligor; (ii) assignment of contractual rights/receivables; and/ or (iii) security over the shares of the Bermuda obligor itself or a relevant Bermuda subsidiary. While asset security may not always be governed by Bermuda law due to the location of the subject assets, security over the shares of a Bermuda vehicle will invariably be governed by Bermuda law for ease of enforcement.

Bermuda law recognises the concept of a trust and places no restrictions on the actions a security trustee may take on behalf of the secured parties.

This is useful in syndicated loans where changes to the lender group are common. Careful drafting of security documents can also ensure that the security can extend to cover facility amendments, where such amendments are already contemplated by the parties and the relevant Bermuda security provider confirms the security in the amendment documents. Where facility amendments are more substantive, supplemental security may need to be taken.

Bermuda law recognises contractual and structural subordination. A liquidator will typically be bound by the terms of an intercreditor or subordination agreement, to which a Bermuda obligor is party, provided such terms are not contrary to Bermuda insolvency law.

Hedging of interest and forex rates is often a key element of finance transactions. Bermuda law will recognise and give effect to netting and set-off provisions (subject in the case of insolvency to the mutuality of debt and credit obligations).

Security over the assets and shares of Bermuda vehicles (whether granted by a Bermuda entity or a non-Bermuda entity) can be registered in Bermuda. Registration is not required to ensure the enforceability or validity of security interests and simply determines priority to the extent Bermuda law governs the priority of the relevant security interest. Specific rules do apply to the registration of certain assets (such as land, insurance policies, aircraft or ships).

CERTAINTY OF ENFORCEMENT

Lenders in secured financings place a high premium on the ease with which their interests are recognised and can be enforced. Bermuda law and practice operate to provide a creditorfriendly regime.

Secured lenders can enforce security and guarantees in a default scenario by reference to the contract giving rise to the guarantee or security in accordance with the loan documentation. Self-help remedies through receipt of certain deliverables and amendments to constitutional documents are designed to facilitate enforcement of share security without requiring recourse to the Bermuda courts. Permission of the Bermuda Monetary Authority, the island's financial services regulator, is required prior to enforcement of share security by certain lenders or in respect of regulated entities.

Bermuda courts will generally recognise and enforce foreign law security and contractual arrangements, provided such arrangements are validly created under the relevant foreign law.

The Bermuda courts have also developed a body of case law, demonstrating their desire to provide practical solutions to facilitate the restructuring of Bermuda companies, with respect to the recognition and provision of assistance to foreign liquidators.

CONCLUSION

Bermuda's legal and regulatory regime provides investors and lenders (whether established financial institutions or alternative credit providers) with minimal risk and substantive creditor protection, thus encouraging the deployment of capital to a wide range of borrowers. We regularly act for companies, investors and lenders on complex cross-border insurance, real estate, fund, aircraft and shipping financing structures.

This article first appeared in the February 2018 issue of Legal Business.

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.

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