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10 Things You Need To Know About…Utilising a Cayman Islands SPV for asset finance transactions

Special purpose vehicles (SPVs) are commonly employed in cross-border and structured finance transactions, as well as in asset finance transactions. In the context of asset finance transactions, SPVs can be a particularly useful structuring tool for both owners and financiers. In their most basic form, they offer a way to hold an asset within a corporate structure, providing a degree of separation between the owner and the asset. In more sophisticated financing and leasing transactions, however, it is common to see an “orphan” or “off-balance sheet” structure used, offering a number of additional benefits. Wherever an SPV Structure is required, the stable political climate, flexible corporate regime and established and creditor friendly legal system offered by the Cayman Islands makes it an ideal choice of jurisdiction for establishing the SPV.

  1. SPVs are widely used as structuring tools in asset finance transactions.

It is very common in the context of asset finance transactions for an asset (be it a commercial vessel, yacht or aircraft) to be held through a corporate structure, with title to the asset being transferred to an SPV rather than the ultimate beneficiary (whether an individual or a corporation) acquiring the asset directly.

Broadly, one of two types of structures are commonly used for asset owning SPVs:

  • “on-balance sheet” SPV structures; and
  • “off-balance sheet” or “orphan” SPV structures.

In an “on-balance” sheet SPV structure, the ultimate beneficiary will establish a wholly owned SPV to take ownership of the asset, but will retain direct ownership and control of the SPV itself (and will typically also consolidate the SPV onto the parent’s balance sheet, hence an “on-balance sheet” structure). This means that they will be the parent/shareholder of the SPV and will normally also act as a (in the case of an individual) or provide directors to (in the case of a corporate owner) the SPV directly. On-balance sheet SPVs are often utilised within group structures for accounting, tax and/or and administrative purposes, and by high net worth individuals acquiring assets (such as yachts and private jets) for succession planning purposes, as well as to limit any personal liability arising in respect of the asset.

“Orphan” or “off-balance sheet” SPVs are typically used for secured financing transactions, and may be established by either the owner or the financier depending on the requirements of the transaction. In these orphan structures, the shares in the SPV are held within an “orphan trust” structure by a corporate trustee (rather than directly by the beneficiary/operator) pursuant to a trust structure (either a charitable trust or a STAR trust). In addition, the directors will usually be independent of the ultimate beneficiary, and the SPV will instead utilise the services of professional independent directors. The SPV will be legally separate (or “orphaned”) from the beneficiary/operator and will be independent of the other transaction parties such as financiers. From an accounting perspective, the SPV will not typically form part of either the operator/beneficiary or the financier’s group as neither of these parties will have a direct ownership interest in the SPV, meaning the assets can be held off their respective balance sheets (hence being an “off-balance sheet SPV”).

 

 

 

 

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10 Things You Need To Know About…Utilising a Cayman Islands SPV for asset finance transactions

 



Jarladth Travers
Senior Vice President and Head of Conyers FIG (Cayman) Limited

Cayman Islands   + 1 345 814 7773


Matthew Stocker
Partner, Head of Cayman Corporate Practice

Cayman Islands   +1 345 814 7382


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