Feb 2018
Sheba Raza of Conyers Dill & Pearman highlights the island’s strengths as an international finance centre.
Why Bermuda?
Bermuda’s reputation as an established international finance centre is well known. Its development over the last 60 years into a dominant (re)insurance venue, and the growing number of investment opportunities available to international investors capitalising on low interest rates, currency fluctuations and distressed assets, has led to the increased use of Bermuda vehicles across a wide spectrum of financing transactions.
Bermuda’s flexible, commercial legislative approach is supported by a clearly-developed, English-based legal system. Politically stable, tax-neutral, and an early adopter of international transparency and compliance standards, Bermuda creates a business-friendly environment, allowing companies to access high-quality capital, while protecting investor and creditor rights.
The use of Bermuda vehicles, with a recognised ownership and corporate governance structure, can often enhance opportunities for international companies to access capital efficiently.
Bermuda’s support for the Lloyd’s of London and US insurance markets results in the issue of numerous investment-grade working capital, revolving and standby letter of credit facilities documented under English or New York law, supported by Bermuda law share and/or asset security. More recently, we have seen growth in multi-jurisdictional credit reinsurance facilities, which combine elements of fund financing (including pledges over capital calls) with traditional reinsurance structures. Bermuda vehicles have also become a common feature of high-profile commercial property secured financings in the London market – particularly with respect to acquisitions by non-UK investors – raising significant sums at the development stage and at subsequent refinancing. The recent sale of The Leadenhall Building (aka ‘Cheesegrater’) for over £1bn is just one such example.
Key Financing Features
In a typical international financing transaction, Bermuda vehicles act as borrowers, guarantors and/or third-party security providers. Such vehicles are generally incorporated as exempted entities.
Exempted vehicles are not subject to stamp duty on international loan and security documents (other than in respect of transactions relating to certain Bermuda property), nor are they subject to exchange control or currency restrictions.
This is useful in syndicated loans where changes to the lender group are common. Careful drafting of security documents can also ensure that the security can extend to cover facility amendments,
where such amendments are already contemplated by the parties and the relevant Bermuda security provider confirms the security in the amendment documents. Where facility amendments are more substantive, supplemental security may need to be taken.
Bermuda law recognises contractual and structural subordination. A liquidator will typically be bound by the terms of an intercreditor or subordination agreement, to which a Bermuda obligor is party, provided such terms are not contrary to Bermuda insolvency law.
Hedging of interest and forex rates is often a key element of finance transactions. Bermuda law will recognise and give effect to netting and set-off provisions (subject in the case of insolvency to the mutuality of debt and credit obligations).
Security over the assets and shares of Bermuda vehicles (whether granted by a Bermuda entity or a non-Bermuda entity) can be registered in Bermuda. Registration is not required to ensure the
enforceability or validity of security interests and simply determines priority to the extent Bermuda law governs the priority of the relevant security interest. Specific rules do apply to the registration of certain assets (such as land, insurance policies, aircraft or ships).
The Bermuda courts have also developed a body of case law, demonstrating their desire to provide practical solutions to facilitate the restructuring of Bermuda companies, with respect to the recognition and provision of assistance to foreign liquidators.
Conclusion
Bermuda’s legal and regulatory regime provides investors and lenders (whether established financial institutions or alternative credit providers) with minimal risk and substantive creditor protection, thus encouraging the deployment of capital to a wide range of borrowers. We regularly act for companies, investors and lenders on complex cross-border insurance, real estate, fund, aircraft and shipping financing structures.