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Financing vehicle is a growing asset class for Bermuda market

Walkers at Park Place, 55 Par-La-Ville Road, Hamilton (Photograph by David Fox)

Bermuda has emerged as a jurisdiction of choice for European investors in commercial real estate collateralised loan obligations, according to the law firm Walkers.

An article just published on their website, highlights CRE CLOs as a growing asset class with significant appeal in the current market environment due to their short duration, floating rate nature and high-quality collateral.

CRE CLOs are a financing vehicle where notes are issued against a pool of CRE assets that are transitional in nature.

The law firm began moving CLO deals from Cayman to Bermuda, after Cayman was “grey-listed" by European governments in February 2022.

The European Union added Cayman to the list of countries identified by the European Commission as having strategic anti-money laundering and counter-terrorist financing deficiencies.

Walkers’ moved multiple deals here over the last year and their Bermuda lawyers have since dealt with an uptick in the number of commercial real estate CLO issuers being incorporated here.

It said that Bermuda appeared to have emerged as the jurisdiction of choice for US CLO managers seeking to market CRE CLO deals to EU investors.

The article stated: “The advantages to managers and investors of incorporating the issuer in Bermuda are numerous.

“As well as the usual factors traditionally associated with the jurisdiction (tax neutrality, stability, compliance with international standards including FATCA/CRS, anti-money laundering and antiterrorist financing and beneficial ownership), Bermuda is well placed to meet the requirements of the CRE CLO market:

•CLO issuers are not subject to Bermuda’s AML/ATF regime.

•CLO issuers are not subject to economic substance requirements in Bermuda, meaning that there are no barriers to appointing manager-affiliated individuals who are not resident in Bermuda to the issuer’s board of directors.

•Bermuda companies (including CLO issuers) need not prepare financial statements if the directors and shareholders agree to waive their preparation.

•A Bermuda issuer is not dependent on real estate investment trust status (which can be lost upon the occurrence of certain events) to be excluded from US taxes.

•The Bermuda Monetary Authority and Registrar of Companies are well versed with CLO structures, both on and off balance sheet, and have demonstrated a commitment to swift incorporation times.“

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Published March 20, 2023 at 7:58 am (Updated March 20, 2023 at 7:58 am)

Financing vehicle is a growing asset class for Bermuda market

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