A typical container securitisation transaction involves the incorporation of a special purpose vehicle (SPV), normally a Bermuda exempted company, although exempted limited liability companies (LLCs) can also be used. The SPV can either be directly owned by the parent or use an orphan structure (held by a Bermuda purpose trust) which removes the asset from the parent’s balance sheet. The SPV will purchase the container leases (or other specified assets) with some form of regular cash flow and issue loan notes or preference shares in the capital markets to finance the purchase. The repayment of principal and interest on such notes is then secured by the purchased assets and the accompanying cash flow.
Key features of Bermuda SPV structures are that they accommodate bankruptcy remoteness, true-sale, non-consolidation, off-balance sheet ownership, credit enhancement and certainty of security interest priority.
Bermuda law provides comfort in leased container transactions, as unlike other jurisdictions with laws which empower liquidators or their equivalent to unilaterally disclaim onerous property (such as a lease), Bermuda law only allows such a disclaimer with the leave of the Bermuda Supreme Court. The benefit of this is that it allows any interested party leasing the containers the ability to be heard before such a step is taken.
Bermuda also has a statutory charge registration regime which ensures certainty of security interest priority. Registration of the security document in the public Register of Charges maintained by the Registrar of Companies ensures that under Bermuda law to the extent that Bermuda law governs the priority of the charge, the secured party’s security interest in the charged assets will have priority over subsequently registered charges and unregistered charges.
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This article first appeared in the July/August 2021 issue of Legal Business.