It has been estimated that there is European bank and bond debt with a combined value of up to €50-75 billion which is due to mature and come to market for refinancing over the next five years (Refinancing 2011: The Scramble to Refinance European Debt, Debtwire, March 2011). Many lenders are currently in the process of reviewing their loan books in advance of potential refinancings / restrucurings and obtaining security reviews analysing their position under existing structures.
Offshore entities (eg companies, trusts and limited partnerships incorporated or registered in Jersey, Guernsey, BVI or the Cayman Islands) are often established in structures as real estate holding vehicles, holding bodies for operating groups, investment funds and special purpose vehicles (eg issuers of securities).
In current market conditions, lenders may require amendments to the transaction documents to ensure the security package is as robust as possible and to facilitate any future enforcement of security. In relation to Jersey security, the draft Security Interests (Jersey) Law 201- is expected to come into force in early 2012 and will allow for lenders to perfect their security by public registration, contract out of the statutory 14 day notice period before enforcement of security and have wider options for enforcement of security. Please see our client briefing entitled Advantages of the New Security Interests (Jersey) Law for more information.
When involved with security reviews or refinancings / restructurings involving offshore entities, lenders should consider the following key issues:
- Is security validly created and perfected (eg through possession of certificates of title, notices and/or registration) over the shares and material assets of the offshore entities, including local law security agreements in respect of assets situated offshore?
- What would be the procedure and timing for any proposed pre-enforcement steps or enforcement of guarantees or security?
- Are any set-off, subordination and non-petition provisions in the transaction documents enforceable against the offshore entities?
- Are there any recommended amendments to the constitutional documents or transaction documents to protect / improve the lenders' position or reflect changes in local law?
- Would the transaction documents (including the choice of law and jurisdiction provisions) and any foreign judgment or arbitration award be enforceable against the offshore entities under local law?
Lenders should also check that legal opinions are obtained at the time of closing of transactions covering:
- the capacity and authority of the offshore entities to enter into the transaction documents; and
- the enforceability of the transaction documents, including the valid creation and perfection of security.