CAYMAN ISLANDS Law and Practice Contributed by: Agnes Molnar, Jason Ta, Paul Walters and Gemma Walters, Travers Thorp Alberga
1. Specific Financial Asset Types 1.1 Common Financial Assets This section addresses certain issues of law and practice in respect of bankruptcy-remote, spe - cial-purpose entities incorporated or established under the laws of the Cayman Islands for the purposes of a securitisation transaction (defined below) (each, an “SPE”). Where used in this section, a securitisation trans - action (a “securitisation”) involves the following: • An SPE is typically established as a thinly capitalised, exempted company with limited liability. Establishment of such entities can be effected quickly in the Cayman Islands. The shares of the SPE are held on trust by a share trustee (which holds a trust licence in the Cayman Islands), often for charitable pur - poses to achieve an orphan structure (defined below). • An orphan structure, intended to ensure that the SPE (i) does not constitute an affiliate or subsidiary of any other entity, in particular, the entity responsible for the transfer of the receivables to the SPE (the “transferor”) and (ii) should not be regarded as an entity which is otherwise controlled by the transferor from a legal, economic or accounting perspective (an “orphan structure”). Several structural fea - tures are incorporated into a securitisation in order to achieve an orphan structure. See 1.2 Structures Relating to Financial Assets . • The offer, issue and sale by the SPE of debt securities to regulated, institutional inves - tors. Such debt securities are often listed on the Cayman Islands Stock Exchange and assigned a credit rating (“debt securities”). • In securitisations a “true sale” gener - ally involves the assignment of legal and/ or beneficial title by a transferor to the SPE
of the right to receive payments gener - ated by an underlying portfolio of typically largely homogenous assets (such cash flows received in respect thereof are referred to herein as “receivables”). The intent of the true sale is that, after the closing date of the securitisation, the transferor does not have any ownership interest in the receivables that could form a part of the insolvent estate of the transferor (such transfers are referred to herein as a “true sale”). The SPE funds the purchase of the receivables using the net pro - ceeds of the issuance of the debt securities. The analysis of what constitutes a true sale is fact specific. See 1.2 Structures Relating to Financial Assets . • Immediately upon the completion of the true sale, the SPE grants security over all of its assets to a security trustee in favour of the applicable transaction parties, debt securities holders and/or investors of the SPE, in order to secure the SPE’s payment obligations to such parties (the “secured parties”). See 2.8 Security Trustees/Agents . • “Bankruptcy-remoteness” protections, intended to provide that the SPE is remote and protected from the bankruptcy or insol - vency of the transferor. Bankruptcy remote - ness seeks to provide that neither the bank - rupt or insolvent transferor, nor the creditors of the transferor, would be able to either set aside, or successfully apply to a court to have set aside, the true sale of the assets to the SPE. See 1.2 Structures Relating to Finan- cial Assets and 3.1 Bankruptcy-Remote Transfer of Financial Assets . Traditional Asset Classes Almost all financial assets that generate a pre - dictable revenue stream arising from retail or corporate assets located in the USA, UK and EU are commonly securitised, including vehi -
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