CD&P: Coming Of The Jet Age In Bermuda
Bermuda is at the “forefront of a global resurgence in aviation finance and has become the jurisdiction of choice for such transactions,” according to a director at a leading Bermuda law firm.
Julie McLean, a director in the Bermuda office of Conyers Dill & Pearman, said that offshore transactions involving aircraft lessor initial public offerings [IPOs] and innovative financings, including asset backed securities (ABS) are almost exclusively domiciled in Bermuda.
Mrs McLean said: “Historically, a great deal of aviation based equity and debt has been raised through Bermuda. Recently, we have seen this trend continue and Bermuda has become the automatic choice for ABS deals with an offshore component.”
She explained that by using a Bermuda SPV, a special purpose vehicle or company formed specifically for the transaction, funding and leasing arrangements may obtain certain tax, regulatory and capital restriction relief through a reliable and trusted jurisdiction, such as Bermuda.
“As a host jurisdiction for an ABS transaction, Bermuda offers tax neutrality. As a stable British Overseas Territory, the legal framework of Bermuda is based on common law principles with English common law having a persuasive role. The involvement of a Bermuda SPV can act as a counterbalance to operator jurisdictions where such stability is less evident,” said Mrs McLean.
She added: “As the market continues its resurgence Bermuda has maintained its position as the preferred jurisdiction in lessor IPOs and ABS transactions.”
CD&P said, “It is expected that the UK will ratify the 2001 Convention on International Interests in Mobile Equipment [commonly referred to as the Cape Town Convention] and that Bermuda will request that UK ratification be extended to the Island.
“The Convention is an international treaty that standardizes transactions involving moveable property, such as aircraft, and which also creates international standards for registration of security interests on an international registry as well as legal remedies for defaults in financing agreements.
“An industry group in Bermuda has been analyzing which declarations under the Convention should apply to Bermuda and is liaising with the UK in this regard.”
“The Convention is another new development which should benefit Bermuda. Once it applies to us, a creditor or secured party engaged with the Bermuda borrower company in the aircraft financing transaction will be afforded all the rights, benefits and protections afforded to creditors under the Convention.
“For certain export credit agencies and lenders engaged in the aviation industry this is an important factor and results in some cases in a lower interest rate being offered to the borrower, a plus in a financing transaction,” added Mrs McLean.
“Bermuda offers the aircraft industry a commercially flexible approach with considerable expertise and a solid, respected legal regime.
