The continuing impact of Covid-19 is clearly the big talking point for 2022, with several questions arising: will new variants emerge, what steps will governments take to limit the spread, and what impact will it have on industries? There are other macroeconomic issues too: the threat of conflict in Ukraine, elections in Brazil and France, and economic rumblings in China.
In the Banking & Finance space, some key themes emerge – the forbearance of the last few years appears to be coming to an end, with an increasing focus on enforcement options. Some semblance of normality is returning to fund finance markets and ESG, as ever, remains a hot topic.
Bermuda: Managers Seeking New Capital Look to Debt Products
Over the course of 2021, Bermuda saw an uptick in deal activity, reflected by both a greater number of transactions but also by aggressive deal timetables. A wave of amendments to previous deals based on the phasing out of LIBOR (and its replacement by new reference rates – SOFR, SONIA etc.) unquestionably featured heavily in the motivating factors behind this trend. We also saw a noticeable increase in demand for debt products across certain industries. Most notably, in reinsurance, a number of asset managers – whose investment focus is in insurance-linked securities or collateralised reinsurance – found themselves seeking alternative sources of capital and increasingly took to debt to help fund renewals in this space. As a result, we expect that managers will make greater use of credit facilities and other debt products in this field and that this trend will continue into 2022.
BVI: Expect Increase in Security Enforcement to Continue
The ongoing Global Pandemic has presented financial challenges to certain industries, which have seen their markets eroded. This has resulted in increased re-scheduling of debt repayments as well as a larger number of defaults, with lenders accelerating their loans and enforcing security. In particular, there was an increase in enforcement of security over the shares of BVI company borrowers and guarantors during 2021. We expect this trend to continue during 2022 for as long as the pandemic prevents any significant recovery in markets. The BVI is a creditor friendly jurisdiction for enforcement of security over shares in a BVI company, with the typical security agreement facilitating a “self-help” enforcement that occurs without the need for a court order. This continues to be particularly attractive to creditors looking for relatively quick enforcement strategies.
Cayman: More Umbrella Facilities for $5 billion+ ‘Super Funds’
The volume of traditional PE fund subscription credit facilities will likely maintain its momentum with the trend of new entrants to the market on both the borrower and lender sides continuing through 2022. Additionally, the growth of US$5 billion+ super funds should lead to an increase in popularity for umbrella facilities which provide cost and timing efficiencies for large sponsor groups. We would also expect the marked increase in the use of asset-based or SPV financings to continue due to the additional protections they provide to lenders and the associated benefits to pricing and the borrowing base. These financings typically feature an SPV borrower structured as ‘bankruptcy remote’. Finally, ESG matters continue to be prominent in the space and we are likely to see a number of social and environmental focused ESG facilities coming to the fore in the coming months.
Guernsey: Enforcement a Hot Topic for Lenders
Our lender clients are increasingly looking for more detailed advice on the enforcement of the offshore aspects of their security package at the outset of a transaction. We are routinely being asked for step-by-step enforcement plans, including details of specific service providers in Guernsey who are able to assist a security agent in executing such plans (in the absence of the concept of receivership). There is an increased focus on the exact mechanics of enforcement in both Guernsey and Jersey, often in the context of a change of security agent and the transfer of distressed debt portfolios. Now that certain UK moratoria are over, we expect that the forbearance of the last two years will come to an end. Where there are distressed debtors in a portfolio they will be treated as such, and we anticipate a level of security enforcement within non-performing businesses.
Ireland: The Future of Finance is Green
In 2022, we expect a greater volume of green finance and sustainability-linked loans as banks continue to deliver on their core values and sustainability commitment. The legislative environment also continues to evolve with the EU introducing numerous legislative initiatives including the EU Taxonomy Climate Delegated Act which sets out technical screening criteria for disclosures required under the EU Taxonomy Regulation. This will help lenders and borrowers assess whether a financial product meets the necessary hallmarks to be considered “sustainable financing” and, together with the Green Bond Standard, should assist with the harmonisation of the green loan and green bond markets across Europe. The main requirements under Sustainable Finance Disclosure Regulation (SFDR) are also due to apply from 1 July 2022 and will harmonise disclosure of how ESG factors are adopted by industry participants in their decision making process. As such, ESG and social impact investing is set to be at the heart of economic recovery from the pandemic.
Jersey: Interesting Rise in New JPUT Instructions
In 2021 we saw an increasing stream of instructions relating to the establishment of new unit trust structures in the context of real estate transactions. We are very familiar with Jersey Property Unit Trusts, or JPUTS, and it is noticeable that instructions relating to the establishment of or financing for new JPUT structures has been increasing significantly, as opposed to working with historic or legacy structures already in existence. We expect the trend of people returning to JPUTS as a structuring vehicle for acquiring UK commercial real estate to continue into 2022. As in Guernsey, we are continuing to see lenders focus on the practicalities of enforcing their Jersey security package. This ranges from high level enforcement advice at the outset of a transaction when lenders are considering lending into a Jersey structure, to real-time enforcement advice as lenders look at exit scenarios from non-performing structures.