Equity and liquidity requirements
Describe how capital and liquidity requirements affect the structure of bank loan facilities, including the availability of related facilities.
To the extent they are involved, under Cayman Islands law, all locally incorporated banks are generally required to maintain a minimum net worth of C$400,000 or its equivalent in other currencies, although this is subject to with certain exceptions for small banking institutions operating in the islands. . The Cayman Islands Monetary Authority (CIMA) has adopted the guidelines established by the Basel Committee on Banking Regulatory and Supervisory Practices for capital adequacy requirements. The Basel Committee recommends a minimum active risk ratio of 8 percent; however, CIMA has applied a minimum asset-at-risk ratio of 10 percent under the relevant law.
For public enterprise debtors, are there any disclosure requirements applicable to bank loan facilities?
Where a debtor company is listed on the Cayman Islands Stock Exchange (the Stock Exchange), there will be continuing obligations in this regard. The obligations will be specific to the type of listed security in question, but generally, as indicated by the Exchange:
[T]The issuer must keep the Exchange, the members of the issuer and other holders of its listed securities informed as soon as reasonably possible, by means of public announcements or circulars, of any information relating to the group which:
- is necessary to allow them, as well as the public, to appreciate the financial situation of the group;
- is necessary to avoid the establishment of a false market in its securities; or
- which can reasonably be expected to materially affect market activity and the price of its securities.
Use of loan proceeds
How is the debtor’s use of bank loan proceeds regulated? What liability could investors be exposed to if the debtor uses the product contrary to the regulations? Can investors mitigate their liability?
The Cayman Islands adhere to all international sanctions imposed on them by the UK and have strong anti-money laundering, proceeds of crime and anti-terrorism legislation; thus, debtors may be subject to criminal penalties and fines if the proceeds of a bank loan are used in connection with criminal or terrorist activity by a Cayman Islands entity (specifically the United States Terrorism Act). Cayman Islands (2018 Revision), Proceeds of Crime Act (2020 Revision), Anti-Money Laundering Regulations (2021 Revision) and Guidance Notes on the Prevention and Detection of Money Laundering and terrorist financing in the Cayman Islands).
Are there regulations that limit an investor’s ability to extend credit to obligors organized or operating in particular jurisdictions? What liability do investors incur if they lend to these debtors? Can investors mitigate their liability?
Bank lending in the Cayman Islands is largely limited to the domestic market. However, when an international bank lends through a Cayman Islands branch, there are regulations that may limit the ability to extend credit to debtors organized or operating from certain jurisdictions. The Cayman Islands observes and enforces all international sanctions imposed on it by the UK. These UN, US and EU sanctions are monitored by CIMA. However, it is the responsibility of the relevant financial service provider to ensure that all applicable sanctions are complied with. Failure to comply with the sanctions incurs various penalties depending on the particular terms of the sanctions.
In limited circumstances, it is possible for a financial service provider incorporated and operating in the Cayman Islands to apply to the Cayman Islands Financial Secretary, pursuant to various restrictive measures or United Nations (Overseas Territories) Sanctions Orders. sea), a license to carry out certain activities that would otherwise be prohibited.
Debtor leverage profile
Are there limits to an investor’s ability to extend credit to a debtor based on the debtor’s debt profile?
There are no limitations under Cayman Islands law.
Do regulations limit the interest rate that can be charged on bank loans?
There is no legal provision regarding the interest rate that can be applied to bank loans. However, when determining the amount of interest under any financing document, a lender should consider that the rate of interest should not be set at a level disproportionate to the debtor’s legitimate interests applicable under particular documents, so that it could be considered as a sanction. A penalty is generally unenforceable under Cayman Islands law.
What are the limits on investors funding bank loans in a currency other than the local currency?
Cayman Islands law imposes no limitation on the currency used in any financing transaction. We would generally not see a local currency (the Cayman Islands dollar) used in international finance. The currencies most commonly used in cross-border bank loans are the US dollar and the euro.
Describe any other regulatory requirements that impact the structuring or availability of bank lending facilities.
Where a Cayman Islands entity is regulated by CIMA, certain restrictions may be imposed by the regulator on that company’s business plan or relevant regulations that may affect the structuring of the whole security under a bank loan facility, as there may be restrictions on giving or giving security over the shares of the company. Capital adequacy requirements may also impact the availability of bank loan facilities where the loan is funded by a local Cayman Islands banking institution or a branch based in the Islands.
Date declared by law
Give the date that the above content is accurate.
May 20, 2020.