1. Project Finance Panorama

1.1 Sponsors and Lenders

As the Cayman Islands is typically used as a taxneutral jurisdiction that is an efficient and neutral platform for sponsors and investors alike, a broad variety of participants in the international project finance 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


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 current expansion of, for instance, the Owen Roberts International Airport located on Grand Cayman, Cayman Islands, as well as a new waste-management and treatment facility. As may be expected, the framework does not apply to international project finance 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 through which to structure international project finance transactions where a tax-neutral jurisdiction is required for the relevant debt securities and bank loans. The four broad categories of benefits that contribute to the appeal of Cayman Islands' structures for international transactions are set out as follows.

Sophistication as a jurisdiction

The Cayman Islands is a British Overseas Territory. The United Kingdom is responsible for the external affairs of the Cayman Islands and 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 the Cayman Islands corporate vehicle, 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 financial sector in the Cayman Islands. Courts in the Cayman Islands are very active, efficient 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 the reassurance that if rights have to be enforced before a court, it will be before a familiar and trusted system.

Commitment to transparency

The Cayman Islands government and its main regulator, the Cayman Islands Monetary Authority, have worked continuously with governments and international authorities over many years to ensure that the Cayman Islands is trusted as a well-regulated, co-operative and transparent jurisdiction. For example, the Cayman Islands was an early adopter of:

  • comprehensive and strict anti-money laundering (AML) laws and know-your-customer (KYC) rules and regulations, which are at least equivalent to those of established Organisation for Economic Co-operation and Development (OECD) member states; and
  • the Foreign Account Tax Compliance Act and the OECD's Common Reporting Standard, so that tax information on investors is now exchanged with over 100 other countries.

As a result, the Cayman Islands is rated by the OECD as largely compliant regarding transparency and information exchange: the same rating given to the UK, Germany and the USA.

Tax neutrality

The Cayman Islands is an ideal tax-neutral domicile for international project finance transactions, as it creates a level taxation playing field 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 flexibility 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 relatively low cost.

Types of Cayman Islands Vehicles

While there are a range of Cayman Islands vehicles to choose from in these transactions (including exempted limited partnerships, limited-liability companies and trusts), "Cayman Islands exempted companies" remain 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 effect 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 finance repackaged securities, in which the underlying assets are infrastructure-related certificates issued by the state upon the completion of agreed milestones;
  • project finance transactions, which rely on the cash-flows generated by the project assets for repayment; and
  • repackaged securities in line with the foregoing, where the debt is government-guaranteed.

In recent years, the securities used to finance Latin American project finance transactions have tended to be of the "structured finance repackaged" type described in the first bullet point above. These securities are invariably issued by orphan note-issuing vehicles. Part of the proceeds of the issue of the securities is used by the issuer to purchase the assets (ie, the infrastructure-related certificates 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 that objective. These include:

  • having the equity interests in the issuer being held under a declaration of trust (which serves to take the issuer "off 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 finance sponsors is not surprising, given broad categories of benefits that contribute to the appeal of Cayman Islands structures previously described.

1.4 Active Industries and Sectors

The COVID-19 pandemic caused a noticeable slow-down in Latin American project finance transactions in 2021 and the beginning of 2022. However, the pandemic has highlighted the need for better essential public infrastructure and various governments have been encouraged to consider reallocating resources to address this. It is also expected that a greater emphasis on public health projects will be seen in the coming years, facilitated by more investment from the private sector.

2. Guarantees and Security

2.1 Assets Available as Collateral to Lenders

The main assets available as collateral to lenders in international project finance transactions that rely on the cash-flows 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 finance repackaged securities, the main assets are the infrastructure-related certificates 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 filed, 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, intellectual property rights, ships, etc), which registers should be updated, in order to secure priority (as opposed to perfection).

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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.