Structured finance is an important part of the Cayman Islands financial services industry and Solomon Harris is able to assist with all offshore legal aspects of such transactions. Statistics are difficult to gather in the structured finance area because the vehicles involved are not regulated entities, but the Cayman Islands is generally acknowledged to be a major offshore centre for structured debt transactions, whether that be simple euro paper issues, repackagings, aircraft or ship financing or the more complex securitisations of mortgages, credit card receivables, car loans, music royalties and the like.
Structured finance has been and remains an important growth area in the global financial services industry, providing issuers with cheaper and more efficient funding combined with greater balance sheet flexibility and investors with a broad selection of fixed income investment alternatives usually with a high credit rating and stable cash flows. This is combined with protection against the potential bankruptcy of the issuer.
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The key Cayman elements of any structured finance transaction will be the establishment of a bankruptcy remote vehicle which owns the assets the subject of the transaction and the provision of service providers to the entity (principally, the directors and the trust company which will own the shares in the entity) to ensure that the integrity of the structure is not tainted in any way. The integrity of the structure is of paramount importance. The vehicle must have its own mind and management and its own voice in the relevant transactions, hence the importance of experienced Cayman professional directors who have a high level of expertise in structured finance.
Many of the features that have contributed to the development of the investment funds business in the Cayman Islands equally apply to structured finance. In addition, the absence of withholding tax problems and exchange controls (there are no withholding taxes in the Cayman Islands and indeed there is a complete absence of any direct taxation), a creditor friendly legal system (there is, for example, no formal corporate rehabilitation procedure akin to US Chapter 11) and the ability to readily obtain an investment grade rating, are particularly significant for structured finance.
- The Cayman Islands provides a hospitable regulatory environment in which to conduct structured finance transactions with an English common law base.
- Special purpose vehicles can be structured in the Cayman Islands to be "bankruptcy remote".
- Specific legislation provides certainty for netting and set off.
- Cayman islands special purpose vehicles regularly receive Triple A ratings from the ratings agencies.
- An abundance of first-class financial institutions with fully staffed branches in the Cayman Islands facilitates the establishment of structured finance transactions.
- The trend of multinational institutions to engage in offshore structured finance transactions continues to accelerate.
- The Cayman Islands continues to be the venue of choice from which to base complex structured finance transactions.