BERMUDA Law and Practice Contributed by: Erik Gotfredsen, Jemima Fearnside and Larina Kenny, Wakefield Quin Limited
Wakefield Quin Limited Victoria Place
31 Victoria Street Hamilton HM 10 Bermuda
Tel: +1 441 494 4000 Fax: +1 441 494 4111 Email: egotfredsen@wq.bm Web: wq.bm
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
1.3 The High-Yield Market The involvement of Bermuda entities in the high-yield debt market is generally driven by external factors such as tax residency, the target investor base, and/ or business operational issues, rather than Bermuda factors. The majority of Bermuda entities that do fol- low this path generally look to the high-yield capital markets in New York. 1.4 Alternative Credit Providers Recently, there has been an increased use of alterna- tive credit providers in preference to licensed banking institutions. This is particularly notable in the refinanc- ing of larger insurance and reinsurance groups, both of which have benefitted from regulatory uncertainty in the current global market, and in asset-backed securi- ty transactions. The use of alternative credit providers taking security over assets in Bermuda has resulted in an uptick in the use of security agents known to the Bermuda Monetary Authority, who are able to take advantage of swift clearance procedures in order to hold and register shares of Bermuda companies on enforcement of security. 1.5 Banking and Finance Techniques There are few restrictions on financial assistance in Bermuda and therefore the use of holding company borrower structures with cross-group guarantees, debentures, and other security is commonplace. While preferred equity arrangements are less common, they benefit from strong market confidence in the ability to enforce liens, fixed and floating charges, mortgages, and other lender-friendly protections, typically without the need for judicial intervention.
As an economy closely tied to the United States, Ber- muda has not been immune to the impact of uncer- tainties arising from tariffs, political instability, and supply chain disruptions exacerbated by geopolitical tensions in the Middle East and the ongoing war in Ukraine. While domestic lenders in Bermuda form part of international banking and finance conglomerates, the Bermuda loan market is largely dominated by the use of Bermuda special purpose vehicles in cross- border structures and transactions. Over the last year, there have been no material chang- es to Bermuda’s company or lending laws that nega- tively affect the rights of secured parties or Bermuda’s reputation as a leading creditor-friendly jurisdiction. 1.2 Impact of Global Conflicts As a result of its close links to the North American market, the financial instability in the Eurozone mar- kets resulting from the Russia-Ukraine war and the Israel-Hamas war has largely bypassed lending and financing transactions in Bermuda. However, the impact of global financial sanctions in various onshore jurisdictions has prompted greater scrutiny of the use of offshore entities in structured lending transactions. Despite this, market perception of Bermuda entities in cross-border transactions has been enhanced by Ber- muda’s status as a tax-compliant and creditor-friendly jurisdiction with an established legal system based on English law.
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