CD&P: Bermuda Airline Financing Set To Soar

November 7, 2011

Aircraft financing is taking off again and Conyers, Dill & Pearman lawyers David Cooke and Jason Piney say today [Nov.7] Bermuda is well placed for a resurgence in this business.

The Bermuda lawyers say with the successful listing of Air Lease Corp on the New York Stock Exchange ­earlier this year and several other aircraft leasing companies reportedly in the process of making ­preliminary filings, industry experts report encouraging signs for initial public offerings in the aircraft sector.

Writing in the British legal journal “The Lawyer”, they say commentators are also speculating that other lessors, including both established players and start-ups, are contemplating going ­public. And with renewed interest in the equity markets, the same experts anticipate the return of the ­aviation asset-backed securitisation [ABS] market.

“Bermuda has long been the offshore jurisdiction of choice for public companie,” say the Conyers lawyers. “The jurisdiction also continues to be an offshore leader in aviation finance, particularly ­innovative financing, and many in the know predict that Bermuda will be at the fore of a revival of the capital markets in the aviation sector.

Indeed, the recent $290 million ­aircraft engine securitisation carried out by GE Capital Aviation Services, completed through Bermuda, suggests that the process has already begun. This is the first aviation securitisation that has closed since 2008.”

The lawyers said it is helpful to consider Bermuda’s role in past lessor IPOs and ABS deals, the benefits of establishing in ­Bermuda and matters specific to ABS deals, including bankruptcy remoteness.

“Historically, a great deal of aviation-based equity and debt has been raised through Bermuda. In the last wave of lessor IPOs in 2006 and 2007, many of the issuers were established in Bermuda,” said the lawyers. “These included Aircastle, Fly Air Leasing Limited ­[formerly Babcock and Brown Air Limited] and ­Genesis, which all successfully launched on the New York Stock Exchange.

“On the debt side, in 2008 AerCap launched its $1 billion aircraft securitisation through a Bermuda special purpose vehicle (SPV) to provide long term non-recourse funding for 30 new A320 family aircraft. Each of Aircastle, Genesis and Babcock and Brown also launched several successful securitisations through Bermuda SPVs, secured on large portfolios of aircraft. ­Aircastle’s initial $560 million securitisation in 2006 was followed in June 2007 by a $1.17 billionn note issuance, with a Standard & Poor’s AAA rating.”

The Conyers lawyers said among Bermuda’s chief attraction to those involved in aircraft financing is its tax-neutral status.

“There are no income, profit or capital gains taxes in Bermuda,” they said “Recent legislative amendments in Bermuda have extended until 31 March 2035 the period for which the Minister of Finance will grant an assurance to ­Bermuda companies that they will not be liable to pay any such taxes in the future.

“This is particularly attractive to holding companies with subsidiary operations in, or significant income arising from, more than one country, such as aircraft lessors. With the ultimate parent incorporated in a tax-neutral jurisdiction, it is difficult for a particular taxing authority to assert its right to tax all of the group’s operations or profits.

“The absence of withholding taxes is also attractive to a Bermuda company’s shareholders.”

But they point out tax advantages can also be found in other offshore jurisdictions, and it would appear that tax alone is not the deciding factor for the desirability of doing business in ­Bermuda.

“Bermuda’s corporate law is flexible and is largely based upon the corporate law of the UK. The principal corporate legislation, the Companies Act 1981, is amended regularly to keep pace with international commercial developments,” the Conyers lawyers said. “Where the securities of a Bermuda company are listed on an overseas exchange, the regulatory regime in the ­Companies Act will often defer to the ­relevant onshore regulation.

“Bermuda’s geographical location further contributes to its popularity. The island is 90 minutes by air from New York and there are regular direct flights to other major US cities, Canada and the UK. The island also has a sophisticated ­infrastructure and a long history of accommodating international businesses. Approximately 75 per cent of Fortune 100 companies maintain a corporate presence in Bermuda.”

David Cooke is a director and Jason Piney is an associate at Conyers Dill & Pearman.

Established in Bermuda in 1928, international law firm Conyers Dill & Pearman now has offices in 11 countries.

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