Structured Finance

The very same factors that enhanced the development of the banking, insurance, and mutual fund industries in the Cayman Islands proved of similar benefit to the development of the capital markets and structured finance transactions. Specifically, the political and economic stability, the absence of taxation, withholding tax and exchange control and the presence of highly sophisticated service providers provided a hospitable financial environment for the development of the debt issuing special purpose vehicle.

The typical structured financed transaction involves a debt issue made by a Cayman Islands corporation, trust, or partnership known as a special purpose vehicle which will then acquire the underlying assets from the promoting financial institution (the "Originator"). The underlying assets may be fixed or revolving but will usually convert into cash within a finite period of time, thereby redeeming the debt issued by the special purpose vehicle.

Such financing arrangements undertaken by special purpose vehicles encompass everything from the simple capital markets euro paper issue, re-packagings, aircraft and ship financing to the somewhat more complex securitized transactions which involve the acquisition by the special purpose vehicle of real property mortgages, credit card or other receivables, finance leases or indeed interests in mutual funds. In short, any financial or other asset which provides an income stream may be acquired by the special purpose vehicle.

The essential feature of the structured finance transaction is the acquisition by the special purpose vehicle of these underlying assets from the Originator and thereby, the financial characteristics of those underlying assets may be converted into readily transferable marketable debt instruments issued by the special purpose vehicle which may comprise notes or bonds and which may be rated and listed. Acceptance of such issues was established beyond doubt in the marketplace when debt issues by Cayman Islands special purpose vehicles first obtained Triple A ratings from the rating agencies. The English courts have also reviewed the Cayman debt issuing vehicle and concluded the structure withstands scrutiny.

Cayman Islands law has facilitated the treatment of the special purpose vehicle as a bankruptcy remote entity specifically by the use of the charitable purpose trust which is well-recognised in the financial markets in London, New York, and Tokyo, or the purpose trust which is formed under the new STAR legislation.

Traditionally the Cayman special purpose vehicle has listed its securities on one or more of the foreign exchanges, particularly Luxembourg. That has now changed with the introduction of the Cayman Islands Stock Exchange (CSX). The listing rules for the CSX are the first on any exchange which are specifically tailored to facilitate the listing of securities of mutual funds and special purpose vehicles.

Click here for a listing of Financing Companies.