Bermuda: Bermuda Securitisation Bulletin June 2019

Last Updated: 4 June 2019
Article by Jason Piney, Neil Henderson, Graham B.R. Collis, David W.P. Cooke, Charles G.R. Collis and Sophia Greaves
Most Read Contributor in Bermuda, June 2019

Bermuda has long been established as one of the largest and most developed offshore jurisdictions for asset-backed securitisation (ABS) transactions, most notably in the aircraft and aircraft engines sectors, but also significantly in respect of shipping container leases, insurance securitisations through catastrophe bonds or transformation transactions, and other asset classes. Historically, a great deal of aviation- based equity and debt has been raised through Bermuda and we have seen this trend expand in the last decade into a variety of other assets, making Bermuda the automatic choice for ABS deals with an offshore component.

This bulletin features a recap of recent securitisation transactions involving Bermuda companies, as well as describing other market developments which we hope will be of interest to our legal colleagues, clients and Bermuda market followers.

Aviation

Bermuda has been domicile to some of the most significant aircraft ABS transactions of the last decade, including high profile deals such as Elix Aviation Capital's Prop 2017-1 Limited in 2017 and START Ltd in 2018, the first aircraft portfolio purchase vehicle structure to include a dedicated asset manager for equity investors and the first aircraft ABS transaction to use a 144A tradeable E-note. START 2018-1 won ABS Deal of the Year in the Airfinance Journal Awards 2018.

  • Acted for the issuers, START II Ltd and START Holding II Ltd, in respect of an asset backed securitisation comprising three tranches of notes secured on a portfolio of 20 in-production aircraft on lease to 13 global airlines in 11 countries, with an appraised value of approximately US$597 million. This ABS transaction marks another aircraft portfolio purchase vehicle structure which includes a dedicated asset manager for equity investors. Conyers also provided Cayman law in respect of the listing of the notes issued by START II Ltd. and the equity certificates issued by START Holding II Ltd on the Cayman Stock Exchange. (Neil Henderson, Director; Angela Atherden, Counsel; Elizabeth Blankendal, Associate; Matthew Stocker, Partner Cayman office)
  • Acted for MAPS 2019-1 Limited, in respect of Merx Aviation's latest aviation asset- backed securitisation comprising US$429 million in three tranches of notes secure on a portfolio of 19 aircraft. (Neil Henderson, Director; Angela Atherden, Associate)
  • Advised START Ltd. and START Holding Ltd., in respect of an asset backed securitisation comprising three tranches of notes secured on a portfolio of 24 in- production aircraft on lease to 16 global airlines in 15 countries, with an appraised value of approximately US$700 million. START Ltd. is notable as the first aircraft portfolio purchase vehicle structure to include a dedicated asset manager for equity investors. (Neil Henderson, Director; Angela Atherden, Associate; Matthew Stocker, Partner Cayman office)
  • Acted for MAPS 2018-1 Limited, in respect of Merx Aviation's inaugural aviation asset backed securitisation comprising of US $506.5 million in three tranches of notes secured on a portfolio of 25 aircraft. The proceeds from the notes were used to refinance the original AABS Limited Asset Backed Secured Term Loan aircraft ABS transaction, which was renamed MAPS 2018-1 Limited. Of the 25 aircraft in this portfolio, 19 were also securitized in the AABS portfolio. (Neil Henderson, Director; Angela Atherden and Edward Rance, Associates)
  • Acted for Aircastle Funding (Ireland) DAC, a wholly-owned subsidiary of Aircastle Limited on the admission of its US$1.28 billion unsecured senior A and senior B notes to the official list of the Bermuda Stock Exchange. (Jason Piney, Director; Alexandra Macdonald, Associate)

Shipping & Containers

Bermuda maintains a strong reputation among container lessors as the offshore jurisdiction of choice for securitisation transactions. Bermuda is also a popular domicile for lessor group holding companies and their operating subsidiaries. As such, a large number of both parent companies and subsidiaries of the leading lessor groups are incorporated in the jurisdiction with ABS transactions effected by Bermuda issuers.

  • Advised Textainer Group Holdings Limited in connection with the issuance of US$350 million of Fixed Rate Asset Backed Notes by its subsidiary Textainer Marine Containers VII Limited. (Sophia Greaves, Director; Edward Rance and Andrew Barnes, Associates)
  • Advised Textainer Group Holdings Limited in connection with an amendment to expand Textainer Limited's revolving credit facility from US$700 million to US$1.5 billion, lower pricing and extend the term for five years. (Sophia Greaves, Director; Edward Rance, Associate)
  • Acted for CAL Funding III Limited in respect of an offering consisting of US$331.5 million of 4.34% Series 2018-2 Fixed Rate Asset-Backed Notes, Class A and US$12 million of 5.22% Series 2018-2 Fixed Rate Asset-Backed Notes, Class B. CAL Funding III is an indirect wholly-owned subsidiary of NYSE-listed CAI International, Inc. (Sophia Greaves, Director; Jennifer Panchaud, Associate)
  • Acted for CAL Funding III Limited in respect of an offering consisting of US$332 million of 3.96% Series 2018-1 Fixed Rate Asset-Backed Notes, Class A and US$16.9 million of 4.80% Series 2018-1 Fixed Rate Asset-Backed Notes, Class B. (Sophia Greaves, Director; Jennifer Panchaud, Associate)
  • Advised Textainer Group Holdings Limited in connection with the issuance of US$300 million of Fixed Rate Asset Backed Notes by its subsidiary Textainer Marine Containers VI Limited. (Sophia Greaves, Director; Edward Rance, Associate)
  • Advised Textainer Group Holdings Limited in connection with the issuance of US$500 million of Fixed Rate Asset Backed Notes by its subsidiary Textainer Marine Containers V Limited. This was one of the largest ABS transactions in the history of the intermodal containers leasing industry. (Sophia Greaves, Director; Edward Rance, Associate)

Insurance

Bermuda is the principal offshore jurisdiction for a range of insurance-linked securities issuances, which use a Bermuda special purpose insurer as the issuer. The issuance of catastrophe bonds, sidecars or similar insurance-related bond issuances are particularly common in Bermuda.

  • Advised Sanders Re II Ltd. on the establishment of its principal at-risk variable rate note program to provide Allstate Insurance Company and certain affiliates with risk protection for certain named storms, earthquake, severe weather, fire and other perils. Sanders Re II Ltd. first issuance was for US$300 million Series 2019-1 Class B Principal-at-Risk Variable Rate Notes due April 7, 2023. (Charles Collis, Director; Jacqueline King, Associate)
  • Advised Home Re 2018-1 Ltd. in connection with the completion of its first securitisation of mortgage insurance portfolio risks. Home Re 2018-1 Ltd. was established to facilitate a program of mortgage insurance linked securities transactions with Mortgage Guaranty Insurance Corporation. It issued a total of US$318.6 million Series 2018-1 Mortgage Insurance-Linked Notes due October 25, 2028. (Charles Collis, Director; Alexandra Macdonald, Associate)
  • Advised SD Re Ltd., a California wildfire cat bond, on the launch of its principal at-risk variable note program pursuant to which it issued US$125 million Series 2018-1 Class A Principal At-Risk Variable Rate Notes due October 19, 2021. The issuance provided Sempra Energy with fully collateralised reinsurance protection against covered exposures, with Hannover Re acting as ceding reinsurer to facilitate access to the risk capital. (Charles Collis, Director; Alexandra Macdonald, Associate)
  • Advised on FloodSmart Re 2018-1, the first catastrophe bond sponsored by the US Federal Emergency Management Agency (FEMA) to provide reinsurance protection to the National Flood Insurance Program (NFIP). The issuance by FloodSmart Re Ltd, a newly- created Bermuda-based special purpose vehicle, was successfully completed at US$500 million. (Charles Collis, Director; Alexandra Macdonald, Associate)

Securitisation and Structured Finance: The Bermuda Model

Although the asset classes are diverse, Bermuda securitisation structures are usually established with similar essential features and for similar reasons. By using a Bermuda SPV, funding and leasing arrangements may obtain certain tax, regulatory and capital restriction relief through a reliable and trusted jurisdiction. As a host jurisdiction for an ABS transaction, Bermuda offers tax neutrality ensuring there are no additional taxes in Bermuda that will impact the transaction. The involvement of a Bermuda SPV can act as a counterbalance to operator jurisdictions where such stability is less evident. Investors, lenders, rating agencies and various service providers are familiar with Bermuda's legal system and have demonstrated a continued commitment to participate in Bermuda structures with limited additional due diligence necessary on their part.

Bermuda securitisation structures accommodate the bankruptcy remoteness, true-sale, non-consolidation, off-balance sheet ownership, credit enhancement and certainty of security interest priority features common to most ABS transactions. However, there are additional benefits Bermuda confers. In lease transactions, Bermuda law provides extral comfort to the lessees because, unlike the laws of many jurisdictions which empower liquidators or their equivalent to disclaim unilaterally onerous property (such as a lease), Bermuda law only allows such a disclaimer with the leave of the Bermuda Supreme Court. This allows any interested party leasing the asset the ability to be heard before such a step is taken.

Many ABS transactions involve an SPV that is directly owned by a parent, but often a transaction will require an "orphan" SPV, meaning that it is not part of the originator's corporate group. By selling the asset to the orphan SPV, the asset is removed from the originator's balance sheet. When an orphan structure is established in Bermuda, the SPV is incorporated with all the shares issued to a trustee (also offshore) pursuant to a purpose trust. A Bermuda purpose trust is of particular benefit in an ABS transaction, structured in this manner, as the purposes of the trust and the duties of the trustees can be clearly linked to the contemplated transactions. In other jurisdictions a charitable trust is usually established where the duties of the trustees of the charitable trust are to maximise the benefits for the charity or charitable purposes and, depending on the circumstances, a conflict of interest may arise. Additionally, a charitable trust created primarily to facilitate a particular structure or transaction, so that the benefits to the charity are not maximised, may be exposed to a substance over form argument that the trustees are really acting in the interests and for the benefit of those who actually benefit from the structure rather than the stated beneficiaries.

Until 2018 the sale of equity notes/E-notes in aviation ABS transactions has involved large investments that trade under strict confidentiality agreements. For securitisation structures to be more attractive, the markets want them to be executed quickly and enable access to more liquid institutional investment on the equity side. To achieve this, recent ABS transactions have started to employ liquid/tradeable E-notes. These have taken the form of Reg S/144A securities which are able to trade in smaller minimum investment sizes, with dealers able to make two-way markets and provide monthly marks. Put simply, tradeable E-notes are intended to create investment opportunities in the aviation market comparable with the way other structured products work, such as the collateralised loan obligation (CLO) market.

Bermuda Stock Exchange

Bermuda has seen a steady acceleration in the number of new international debt listings, both through ABS and intercompany loan note transactions listing on the Bermuda Stock Exchange (BSX), a member of the World Federation of Exchanges, with aircraft operating lessors and other issuers keen to take advantage of the BSX's favourable disclosure requirements and listing fee structure. The BSX is not bound by or subject to any European Union directives or regulations, including the EU Market Abuse Regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions