Project Finance Guide 2025: Cayman Islands

1. Project Finance Panorama

1.1 Sponsors and Lenders

As the Cayman Islands is typically used as a tax-neutral jurisdiction that is an eɉcient and neutral platform for sponsors and investors alike, a broad variety of participants in the international project Änance space can be found – from domestic construction companies and foreign international infrastructure companies on the sponsor side, to government-owned development banks, institutional lending banks, and private equity and hedge funds on the lender side.

1.2 Public-Private Partnership Transactions

Historically, soft-law guidelines from administrative authorities in the Cayman Islands were the main source of PPP regulation for local PPP projects. However, the introduction of a public procurement legal framework in 2018 has resulted in the Cayman Islands having one of the youngest PPP law and regulation models in the world. This framework has been used as the basis for assessing and regulating the recent expansion of, for instance, the Owen Roberts International Airport located on Grand Cayman, Cayman Islands. As may be expected, the framework does not apply to international project Änance transactions structured through Cayman Islands vehicles.

1.3 Structuring the Deal

The Cayman Islands as a Jurisdiction of Choice

The Cayman Islands continues to be one of the leading tax-neutral jurisdictions for structuring international project Änance transactions where a tax-neutral jurisdiction is required for the relevant debt securities and bank loans. There are four broad categories of beneÄts that contribute to the appeal of Cayman Islands structures for international transactions, outlined as follows:

Sophistication as a jurisdiction

The Cayman Islands is a British Overseas Territory. The UK is responsible for the external aɈairs of the Cayman Islands, its defence and internal security but, otherwise, the Cayman Islands is self-governing, with a democratically elected legislature. The Cayman Islands makes its own laws and has independent legal and judicial systems. Well-recognised legal concepts (including limited liability and separate corporate personality) underpin Cayman Islands corporate vehicles, as well as the principles governing lending and the granting of security over assets. Decades of experience and extensive due diligence have demonstrated to investors, banks, development agencies, counterparties, regulators and international authorities that these foundations are solid and reliable. Furthermore, international lenders and rating agencies have rigorously reviewed and stress-tested Cayman Islands laws governing lending and the granting of margin and security over assets.

There are dedicated commercial courts in the Cayman Islands, including a Financial Services Division of the Grand Court that recognises the need for special procedures and skills in dealing with the more complex civil cases that arise out of the Änancial sector in the Cayman Islands. Courts in the Cayman Islands are very active, eɉcient and well-respected. In addition, the ultimate court of appeal is the Privy Council in London; as a result, there is a good deal of certainty in relation to the judicial process. This is a strong source of comfort for investors and counterparties who may want reassurance that – if rights must be enforced before a court – it will be before a familiar and trusted system.

Commitment to transparency

The Cayman Islands government and its regulators, including the Cayman Islands Monetary Authority and the Department for International Tax Co-operation, have worked continuously with governments and international authorities for many years to ensure that the Cayman Islands is trusted as a well-regulated, co-operative and transparent jurisdiction. By way of example, the Cayman Islands was an early adopter of:

• comprehensive and strict AML laws and KYC rules and regulations that implement Financial Action Task Force recommendations; and
• the Foreign Account Tax Compliance Act and the OECD's Common Reporting Standard, such that Änancial account information from Cayman Islands Änancial institutions is now exchanged with more than 100 other countries.

As a result, the Cayman Islands was given the highest possible rating for the eɈectiveness of its Automatic Exchange of Financial Account regime in the OECD Peer Review of the Automatic Exchange of Financial Account Information 2022, which rating was reconÄrmed in the 2024 peer review update.

Tax neutrality

The Cayman Islands is an ideal tax-neutral domicile for international project Änance transactions, as it creates a level taxation playing Äeld for investors by not adding a further layer of taxation and it has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.

Simplicity of entity-formation and Åexibility of their administration

The formalities regarding the incorporation of companies are simple and straightforward, so they can be incorporated on a same-day basis and at a relatively low cost.

Types of Cayman Islands Vehicles

Although there are a range of Cayman Islands vehicles to choose from in these transactions (including exempted limited partnerships, limited liability companies (LLCs), and trusts), the "Cayman Islands exempted company" remains the most popular form of vehicles used to structure "issuers" of debt securities and "borrowers" of bank loans. The Cayman Islands exempted non-resident company (or exempted company) is a body corporate limited by shares and is similar in form to "private companies limited by shares" and "corporations" in jurisdictions such as England and Wales and the USA, respectively.

The laws of the Cayman Islands underpinning companies provide a framework that can be adapted to give eɈect to a wide range of commercially agreed requirements, including bespoke objects for which exempted companies can be incorporated and highly individual corporate governance arrangements. This enables the constitution of companies to be tailored to many different situations. Typical Funding Techniques The vast majority of PPP contracts are funded in one of three ways:

• structured Änance repackaged securities, in which the underlying assets are infrastructure-related certiÄcates issued by the state upon the completion of agreed milestones;
• project Änance transactions, which rely on the cash Åows generated by the project assets for repayment; or
• repackaged securities in line with the foregoing, where the debt is government-guaranteed.

In recent years, the securities used to Änance Latin American project Änance transactions have tended to be of the "structured Änance repackaged" type described in the Ärst of the foregoing bullet points. These securities are invariably issued by orphan noteissuing vehicles. Part of the proceeds of the issue of the securities is used by the issuer to purchase the assets (ie, the infrastructure-related certiÄcates issued by the relevant government). The single most important structural feature of these issuers is to make them "bankruptcy-remote". In practice, this means ensuring that, in the event that the originator or seller of the assets goes into bankruptcy:

• a liquidator of that originator or seller cannot attach them (ie, that the issuer is independent and that there is a "true sale" of the assets to it); and
• the issuer does not go into insolvency, in the Cayman Islands or elsewhere.

There are a number of essential features, often interrelated, that are employed to achieve this objective. These include:

• having the equity interests in the issuer being held under a declaration of trust (which serves to take the issuer "oɈ the balance sheet" of related-transaction parties); and
• ensuring that all obligations of the issuer are secured and the recourse of creditors is limited to the secured assets as set out in the principal transaction documents (ie, that all obligations to transaction creditors are secured by the purchased assets and that recourse is limited to those assets accordingly).

The success of such orphan note-issuing vehicles and their attractiveness to international project Änance sponsors is not surprising, given the broad categories of beneÄts that contribute to the appeal of Cayman Islands structures as previously described.

1.4 Active Industries and Sectors

Project Änance transactions have faced challenges in recent years due to high interest rates and an unfavourable inÅationary environment. Changing economic and political conditions have also caused headwinds. Whilst deal Åow has increased recently, new project development, especially in renewable energy, faces signiÄcant hurdles because of increasing costs.

2. Guarantees and Security

2.1 Assets Available as Collateral to Lenders

The main assets available as collateral to lenders in international project Änance transactions that rely on the cash Åows generated by their assets are:

• the shares in the project company;
• the project assets;
• the project site;
• the project company's bank accounts;
• the key project contracts; and
• the project insurances.

In the case of structured Änance repackaged securities, the main assets are the infrastructure-related certiÄcates issued by government and – where available – government guarantees. In each case, the formalities and perfection of the relevant security interests will depend on the nature of the underlying assets that are subject to the security interest and the lex situs of collateral. Separately, security documents do not need to be Äled, registered or recorded in the Cayman Islands in order to be perfected (as there is no public or central registry in which to record them). Certain entities are required to maintain registers of mortgages and charges, which should be updated whenever they provide security over their assets; however, failure to update those registers does not impact the validity or priority of the security. Central security registers do exist for certain types of assets (including Cayman Islands real estate, IP rights, and ships) – the registers of which should be updated, in order to secure priority (as opposed to perfection).

2.2 Charges or Interest Over All Present and Future Assets of a Company

Fixed and Åoating charges are both possible under Cayman Islands law: Äxed charges are usually taken over speciÄc assets, whereas Åoating charges tend to cover those assets not covered by the Äxed charge (assets that tend to be shifting by nature). Until crystallised into a Äxed charge, a Åoating charge is intended to allow the charger to continue to use the secured assets in question.

2.3 Registering Collateral Security Interests

A company must make an entry in its register of mortgages and charges in respect of any security interest created by it, in order to comply with the Companies Act (As Revised). An LLC must also make an entry on its register of mortgages and charges in a similar manner. In each case, failure to make the entry does not aɈect the validity of the security; however, it would be in the interest of any secured party to ensure that this is done so that any potential creditors who inspect the register are put on notice. The registered oɉceprovider to a company or LLC will usually arrange for this promptly and, given how easy they are to do, these updates are typically very eɉcient from a cost perspective.

Other than this, it is not necessary that any transaction documents creating a security interest by a company be Äled, recorded or enrolled with any governmental, regulatory or judicial authority in the Cayman Islands in order to ensure the validity of the security interest. However, charges over certain assets granted by Cayman Islands companies – such as Cayman Islands real estate, IP rights, ships and aircraft – do need to be registered at other specialist registries related to the asset in question.

2.4 Granting a Valid Security Interest

All-asset debentures are both common and permissible in the Cayman Islands and do not require that each item of collateral be individually identiÄed in the

debenture itself. The laws of the Cayman Islands also permit liens and pledges – although these are rarely used in practice (in the case of pledges, this is most likely because physical delivery of the underlying asset is required). Mortgages (both legal and equitable) and charges (both Äxed and Åoating) are generally used instead.

2.5 Restrictions on the Grant of Security or Guarantees

There are no statutory restrictions on the form of security that can be granted by a Cayman Islands company, nor do any such restrictions exist in respect of the amount of guarantees that can be granted. All the property of a Cayman Islands company should therefore be available to secure any international project Änance transactions. In approving the grant of any security or the provision of any guarantee, among the various Äduciary duties that are imposed on them, the directors of the company should act in good faith and should be satisÄed that their provision is in the best interests of the company as a whole.

2.6 Absence of Other Liens

With limited exceptions (for Cayman Islands real estate, IP rights, ships, etc), no public security register exists in the Cayman Islands that can be searched to determine whether a Cayman Islands company has granted any security interests. However, as noted in 2.3 Registering Collateral Security Interests, a company must make an entry in its register of mortgages and charges in respect of any security interest created by it in order to comply with the Companies Act (As Revised) and an LLC must also make an entry on its register of mortgages and charges in a similar manner.

2.7 Releasing Forms of Security

In the context of international project Änance transactions, where the assets are not located in the Cayman Islands and where the laws of the Cayman Islands are not used as the governing law of the relevant security agreements, no Cayman Islands steps need to be taken to release the security. However, it is customary to enter a deed of release or equivalent document to conÄrm or evidence the release. Any entries on the register of mortgages and charges of a company or an LLC should be updated to reÅect the release of the security – although failure to do so does not impact the validity of the release.

3. Enforcement

3.1 Enforcement of Collateral by Secured Lender

The Cayman Islands has statutory provisions that allow secured creditors to enforce their security without leave of a restructuring oɉcer, liquidator or the court (one limited exception being the case of foreclosure, which is unlikely to be available in ordinary circumstances). The transaction documents in each Änancing transaction will set out the basis on which the lender can enforce its collateral, and a secured creditor's rights on the enforcement of a security interest should be set out in their enforcement provisions. A secured creditor with a valid and enforceable security interest will ordinarily be entitled to enforce its security interest, irrespective of whether the granting company is in liquidation.

Any secured party looking to exercise its collateral should (of course) seek Cayman Islands legal advice to the extent that there is a Cayman Islands nexus. By way of example, no statutory power of sale exists in Cayman Islands law, so this should be included in Cayman Islands law-governed security documents where possible. Any party looking to enforce its security where such a power exists should also be mindful of the need to:

• act in good faith in choosing to sell the collateral; and
• take all reasonable precautions to obtain the best price reasonably obtainable on the sale.

If the security in question is shares in a Cayman Islands company, any transfer of those shares would require the approval of the liquidator (if the company is in voluntary liquidation) or the court (if the company is in liquidation under the supervision of the court).

3.2 Foreign Law

The choice of a foreign law as the governing law of a contract would be recognised by the courts of the Cayman Islands, assuming it:

• would be regarded as a valid and binding selection that would be upheld by the relevant foreign courts as a matter of the applicable foreign law and all other relevant laws; and
• had been made in good faith.

The submission by a company in a contract to the jurisdiction of the courts of a particular foreign jurisdiction will be legal, valid and binding on that company, assuming that the same is true under the governing law of the contract and under the laws, rules and procedures applying in the courts of that foreign jurisdiction.

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Originally published by CHAMBERS GLOBAL PRACTICE GUIDES

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.