Rated Note Feeders and Cayman Islands – Lender FAQs – Financial Services


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Our customers often ask us, “What do you see? Something interesting on the market on your side? Our answer, as the Cayman council, is more often than not that we are a ship floating in a tide and what they see as trends in the US fund structuring and fundraising market will flounder (or has already) washed up on our shores. One such trend that we continue to see advancing in the market is the confluence of the private equity and insurance sectors. This courtship takes various forms, but as private equity sponsors continue to look to the vast pool of investable capital available in the insurance market, and insurers look across the river the stellar returns from these private equity sponsors, we are increasingly seeing the use of rated ticket providers established as Cayman Islands Limited Liability Companies (LLCs) or Exempt Limited Partnerships (ELPs) to bridge the accessibility gap between insurers and private equity funds.

As might be expected, while there are obvious structural differences between a “standard” feeder fund (where limited partners (LPs) hold equity interests in the feeder fund rather than debt securities issued by the feeder) and a rated feeder fund, the sponsors still expect such feeders and their respective noteholders should be included in the borrowing base for the underwriting facilities and be treated to the extent possible as if they were a company in normal sponsorship.

This note discusses some lender FAQs that we have encountered when a rated note feeder is a Cayman vehicle and is a potential credit party to a fund financing facility.

What is a Note Loader?

The characteristics of a Cayman Islands formed Noted Note Feeder will in most cases be very similar to those of an equivalent Delaware vehicle, except for the overlay of local law considerations discussed further below. and will involve: (i) an LLC or ELP LPA agreement to form the vehicle; (ii) a Note Purchase Agreement (NPA) under which the Notes are constituted (and related offering memorandum for rating agency purposes in certain cases); and (iii) a subscription agreement for the Notes (and, in some cases, a hybrid form permitting subscriptions partly in Notes and partly in ELP interest). The general objective and purpose of the documents, however, is to recreate as far as possible the capital commitment and capital call mechanism of a standard private equity vehicle, except in this case constituted as a commitment to finance advances for the issuance of tickets.

Is there a material difference from a Cayman perspective between: (i) taking security over call rights under the NPA (the right to call advances from a noteholder) and (ii) taking security over capital call rights under the LPA?

In short – no. Other than various adjustments to security documents to appropriately reference and capture the specific rights in question, Cayman’s analysis for taking security over rights from an NPA governed by Cayman law is the same. in all material respects than a grant of security over capital. appeal rights contained in an LPA governed by Cayman law. Accordingly, the assignment as security of these rights is usually captured in a security agreement governed by New York law (for transactions based in North America).

Are there specific legal requirements in Cayman regarding taking security over the rights emanating from an NPA?

As mentioned above, the Cayman classification of such security is materially similar to that of capital call rights security, and this also rings true for the question of how the secured party can perfect or obtain the priority of such security. For security on capital call rights, as most readers know, lenders generally require that a notice be sent to LPs after closing advising them of the security (which, from Cayman’s point of view , obtains priority of security for the secured creditor). The same analysis applies in the context of the security interest in the purchase rights contained in a NPA governed by Cayman law, and notice must be served on noteholders after closing in order to obtain the priority of this security in the same way.

Do Cayman-rated ticket providers fall within the scope of the Private Funds Act (PF Act) and are they required to register with the Cayman Islands Monetary Authority (CIMA)?

Most of the Cayman-rated ticket providers we’ve encountered to date were created with a single investor in mind and therefore end up being single-investor vehicles and not a “private fund” for the purposes of the law. PF. In other cases, however, we have seen note issue providers that have been a hybrid model of capital commitment and note commitments by multiple investors and in these circumstances the applicable vehicle has fallen into the scope of the PF law and, therefore, the usual considerations (that’s to say, registration, appropriate covenants in transaction documents, etc.) would apply. Listed note loaders are, by their very nature, bespoke, and careful analysis of the position of the PF law is therefore required in each case.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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