Listing Loan Participating Notes in the Cayman Islands
Given a recent upsurge in both the instructions and general inquiries we have received in connection with listing loan participating notes (“LPNs”) on the Cayman
Islands Stock Exchange (the “CSX”), this advisory provides you with some of the material details you will need to know before embarking on such a listing. The primary structures involving LPNs include transactions where:
» a bank originates a loan and then sells that loan to a special purpose vehicle which issues LPNs to finance the acquisition of the loan;
» an orphan special purpose vehicle is established to issue LPNs in the marketplace for the sole purpose of financing a loan to be made directly by the special purpose vehicle to the underlying obligor/borrower;
» a bank originates a loan and then grants a participation to a special purpose vehicle (often a Cayman Islands trust, in the context of Latin American
financings), the acquisition of that participation being funded by the issuance of notes in the capital markets. In each structure, cashflows referable to the loan (or participation) are used to make payments on the LPNs.
CSX Listing Rules
Similar to the listing rules of other exchanges, the CSX listing rules (the “Listing Rules”) do not contain prescribed rules for the listing of LPNs. Fortunately, the Listing Rules applicable to “specialist debt securities” and “corporate and sovereign debt securities” are sufficiently flexible to accommodate the listing of LPNs. It is important to consider the relevant Listing Rules and to identify early on which, if any, may cause an issue in terms of disclosure or otherwise; these should then be discussed in advance with the CSX.
In addition to customary information about the issuer, the Listing Rules require that certain additional information on the issuer be disclosed and included in the listing document, including but not limited to: (i) financial information; (ii) details about the issuer (including the nature of its business activities, its group (if any) and its directors); and (iii) the provisions of material contracts entered into by the issuer and confirmation as to where these documents will be available for inspection.
The Listing Rules also provide, among other things, that the CSX must be satisfied that investors will be able to obtain the necessary information on the assets underlying the note issuance (being the underlying loan in the context of a listing of LPNs) to enable them to form a reasonable opinion as to the value of such assets and this invariably entails disclosing information in relation to the borrower which would include satisfactory financial and other information including a description of the borrower’s credit quality.
Exemptions/Derogations
The CSX has significant experience listing LPNs and, in our experience, is quite flexible and responsive. We have always found the CSX to be willing to work with prospective issuers who have concerns about disclosing certain sensitive information, provided there are sound reasons for those concerns and that acceptable alternative approaches are proposed. If an issuer is already listed or has debt listed on another recognised exchange, the CSX can permit certain derogations from the Listing Rules or permit the issuer to incorporate into the listing document certain information by reference. Generally the CSX will also be satisfied with an issuer level responsibility statement only, as opposed to requiring such a statement from the borrower as well.
The Listing Rules are predicated upon disclosure being sufficient for investors, as described above, however in a typical transaction involving LPNs, there is often a degree of sensitivity as regards disclosing certain information, particularly in relation to the borrower. To ensure investors are provided with, or are in a position to obtain, the necessary information to allow them to determine whether they should invest in the LPNs and to ensure compliance with the Listing Rules, we have agreed a number of solutions with the CSX in circumstances where disclosure requirements of the Listing Rules were causing problems for transaction parties. Some illustrative examples follow:
» in a transaction in which certain information in relation to the borrower was extremely sensitive it was agreed with the CSX that such information could be omitted if the issuer undertook to provide investors with further details on such commercially sensitive matters on their signing a confidentiality agreement. This allowed the client to obtain the required listing without having to disclose commercially sensitive information generally, which would have allowed persons other than investors (such as competitors of the borrower) access to this valuable information;
» as a means to supplement the limited information contained in the offering document in relation to the borrower and the asset backing the LPNs (being the loan), we agreed with the CSX to include the loan agreement as an exhibit to the relevant listing document which meant that it was unnecessary to prepare a summary of the provisions of the document, saved time and costs and provided a pragmatic solution to a time-sensitive situation; and
» in a situation in which detailed on-going financial information would be required by investors in relation to the borrower, we agreed with the CSX that the issuer would undertake in the listing document to disclose quarterly and annual financial statements of the borrower (and guarantor if any) to investors on request. This approach avoided the general public disclosure of such sensitive information to those who were not concerned by it and also reduced the on-going administrative obligations of the issuer.
The CSX
The CSX is approachable, responsive (the reviewers generally provide comments on documentation submitted within 2-3 days) and will work to reasonable deadlines to the extent possible. In our experience the CSX is also proactive and will consider the practical problems certain Listing Rules may create and whether alternative approaches may be acceptable.
Walkers’ Role
Walkers supports onshore counsel and liaises with the CSX, as required, to ensure that the LPN offering document is in compliance with the Listing Rules. Alternatively, if the LPNs are issued without the prior engagement of Walkers, we prepare or support onshore counsel in the preparation of a compliant listing document and are always able to suggest solutions or explore alternative approaches with the CSX where concerns arise. We have extremely good working relationships with and access to the CSX and liaise directly with the CSX during the listing process. We also handle the preparation and submission of the ancillary application documents required by the CSX
Walkers’ Listing Services
In addition to listing LPNs, our listing team has significant experience listing equity and debt of other types on the CSX. Our team draws its membership and expertise from our market-leading banking, structured products and capital markets practices, which means that they are fully conversant with the various structures and products employed in structured debt issuances. The team is also comfortable analysing and assessing the financial assets underlying such transactions, such as bilateral/syndicated loans and funded or unfunded participations.
Our listing team comprises individuals based in each of our Cayman Islands, Ireland and Jersey offices who assist and advise in relation to listings by companies and issuers from a variety of different jurisdictions.
For more go to: www.walkersglobal.com