CAYMAN ISLANDS Law and Practice Contributed by: Agnes Molnar, Jason Ta, Paul Walters and Gemma Walters, Travers Thorp Alberga
cle financing and leasing arrangements, cash flows arising from the operations of a corporate or entire group (whole business securitisation), commercial and residential mortgages, broadly syndicated loans and middle market loans made
tion counterparty will undertake contractually not to engage in, or petition for, the winding up or insolvency of the SPE. Orphan Structure Several structural features supporting orphan structure analysis are typically included in secu - ritisations, including the following: • First, the appointment of the directors of the SPE may be effected by the SPE’s Cayman Islands corporate services provider or admin - istrator, as opposed to the transferor or its advisers. • Second, the shareholder of the SPE will often be a Cayman Islands-domiciled share trustee. The shares are commonly held on trust for charitable purposes. Neither the transferor nor any member of its corporate group should be appointed as a shareholder or director of the SPE. • Third, the SPE will have independent Cay - man Islands legal counsel appointed by the directors of the SPE. The Cayman Islands are home to many reputable law firms that provide such independent advice. • Fourth, the assets, proceeds generated from the receivables of the SPE and monies belonging to the SPE, are held separately from the assets and monies of the transferor, with a view to minimising commingling risk. • Fifth, evidence of arm’s length negotiation, and incorporation of commercially reason - able terms into the securitisation transaction documentation are important from a Cayman Islands perspective. For example, overcol - lateralisation should be kept within a reason - able, commercial level and proper considera - tion should be given (and paid) in respect of the sale of the receivables. The applicable corporate resolutions of the SPE often include
to commercial borrowers. Alternative Asset Classes
Increasingly, entities are established in the Cay - man Islands to provide funding with respect to the ongoing risk retention requirements of origi - nators, sponsors, original lenders and servicers pursuant to the EU/UK securitisation regulations. There has also been an increase in the usage of derivative instruments (total return swaps and credit default swaps) within the context of risk retention requirements. Income, or other proceeds generated by Cayman Islands-domiciled funds, are commonly securi - tised in collateralised fund obligation transac - tions (CFOs). Such structures are increasingly common given the growth of the private credit markets in recent years. A CFO typically involves securitisation of private fund interests (such as limited partnership inter - ests) and other liquid assets or income proceeds. The debt securities are backed by the payment stream received from the underlying fund assets. The CFO issuer is structured as an SPE including typical bankruptcy-remote features. 1.2 Structures Relating to Financial Assets A securitisation will typically include the material
features outlined below. Bankruptcy Remoteness
The SPE is intended to be treated as an entity remote from the transferor and unaffected by the insolvency of the transferor. Each transac -
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