Covid-19 disruption has hit different parts of the global economy in different ways, and while the dust has not yet fully settled, some clarity is starting to emerge. In this piece, Partner Sam Shires and senior counsel Kim Paiva from Walkers' Guernsey Banking & Finance team discuss the impact on different aspects of their practice including asset, aviation, maritime and real estate finance, and how far down the road lenders are going in terms of enforcement options.
How is asset financing work holding up through the downturn?
Some areas have been hit harder than others in terms of the flow of transaction work but we continue to see a strong flow of instructions both in relation to shipping and aviation matters, both finance and registration-related. There has also been some restructuring of loans with banks and lenders, and from what we have seen, some banks are continuing to demonstrate forbearance.
Can you give an example of the kind of uses of Guernsey structures for maritime finance work?
As a firm we have been active in this area for quite some time – we have a global maritime finance group, and work closely with our teams in Bermuda, Cayman and Singapore in particular. What we are seeing is consistent with the way that we see Guernsey structures used generally in this space, which is typically Guernsey companies used as SPV vehicles for the chartering of container and cruise ships and/or leasing large refrigeration units. The work has primarily involved the charter or novation of existing charters of container and cruise ships and cargo containers and these instructions are predominately coming out of the Asia region, with Chinese banks and specialist leasing companies very active in the market. The chartering or leasing entity is often a Guernsey company. Our role involves advising the lessor/financier on matters of Guernsey law as they relate to the charterer/lessee, providing due diligence confirmations on the SPV entity and providing Guernsey law due capacity and enforceability opinions on the Guernsey entity entering into the charter or lease documents.
What kind of work is coming through on the aviation side?
Again, we have a global group focused on aviation side, and we work closely with colleagues in our Bermuda, Cayman and Dublin offices in particular, which gives us a good overview of what the market is seeing. The trends that involve a Guernsey-law element include instructions to assist and advise lenders, owners and financiers in relation to the registration of aircraft on Guernsey's Aircraft Register (2-REG). Our role involves advising on the Guernsey law requirements of registration of the aircraft, registration of charges on the charges register and providing Guernsey legal opinions and advice on the Cape Town Convention. We are seeing a lot more of this work at present, along with assisting with financing transactions involving Guernsey entities acquiring aircraft assets.
How is the 2-REG aircraft registry being used?
2-REG is primarily used as an interim or temporary register for aircraft that are moving on and off-lease. It has become a very popular register for these types of registrations, and this has been a busy area for us which we expect to continue to be strong in the coming months. 2-REG is also used for corporate or business jet registrations. 2-REG issues air operator certificates for the charter of aircraft for commercial use and to date 6 AOCs have been issued.
Guernsey is also used for real estate structuring – what are you seeing with that kind of work?
We are pre-dominantly seeing re-financings and amendments and restatements of existing facilities rather than new lending. Our role is similar to the way we work in respect of asset financing in that the entity which owns the property or other obligors within the borrowing group will be Guernsey SPVs. Obviously the pause button has currently been pressed on major acquisition and disposal work, along with development work for build to let projects. We expect this market to become active again once things become more normal and deals can be priced with more certainty, there is certainly capital out there, but it feels like investors are pausing and waiting for more certainty and clarity to emerge.
Have you seen clients using the enforcement regime at this point?
What we have seen is consistent with the messages in the business press, in that banks continue to demonstrate forbearance and to take a longer-term view, in light of the way that a variety of sectors have been hit, to varying degrees, by the economic disruption stemming from the coronavirus. That said, we have received queries about enforcement processes and pre-enforcement steps, but so far that appears to be from the perspective of exploring and evaluating options. We work closely with our Insolvency & Dispute Resolution colleagues where these issues arise, but we have yet to see enforcement instructions – at the moment it feels like that too is all on hold, until we have a clearer sense of how events over the next few weeks and months will unfold.
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