Legal Practice Notes

Introduction In ship finance, the typical security package comprises a mortgage over the vessel—supplemented, in jurisdictions that rely on a short form statutory mortgage such as the UK, by a separate deed of covenant—and an assignment (often termed a 'general assignment') of the vessel’s insurances, earnings and any requisition compensation (for further details on the forms of security commonly used in shipping finance transactions, see Practice Note: Shipping finance—security and Precedent: Deed of covenant: for a ship mortgage). Taking discrete security over insurances and earnings is especially important in shipping finance because the borrower is commonly a single ship-owning company that generally has no material assets other than the vessel together with its insurances and income. In most jurisdictions, including the UK, a mortgagee of a vessel does not automatically obtain any security interest in the ship’s insurances......

This Practice Note is part of the Share purchase transaction collection Carrying out legal due diligence typically entails examining papers the seller provides in a data room or forwards to the buyer for assessment. This commonly covers a range of agreements (including specialist contracts), alongside records, ledgers and lists. On a share acquisition, corporate counsel will invariably scrutinise core corporate documentation, for example the company’s articles of association and its statutory books and records. The process must also comprise searches of public registers, for example Companies House and HM Land Registry. The disclosure letter will often include general disclosures reflecting what those public searches reveal; the buyer should require evidence of searches actually undertaken, not merely information that would have surfaced had a search been carried out. The buyer’s legal due diligence will typically concentrate on: title (the seller’s title to the sale shares, and title to key...

What does this Practice Note cover? This Practice Note sets out the key distinctions between ISDA documentation subject to New York law and that governed by English law. For International Swaps and Derivatives Association ( ISDA) papers, these two choices of law are the most frequently adopted, notably where parties from separate jurisdictions wish to settle on a governing law acceptable to both. The ‘ Cross- Border Multi- Currency ISDA Master Agreement’ is intended to be fully effective and enforceable under either selection of law. That position has been achieved not only through meticulous drafting, but also through ISDA’s influence in pressing national legislators to enact legislation that supports the cross-border market for financial transactions concluded on its standard terms. Consequently, across the ISDA Master Agreement, the Schedule and related documents, there tends to be minimal divergence, aside from the additional terms agreed in Part 5 of the...

Introduction This Practice Note considers how the obligation on certain bodies under Part 21A of the Companies Act 2006 ( CA 2006) to collect and deliver to Companies House details of their ‘persons of significant control’ ( PSCs) may affect lenders and secured creditors (together, finance parties). It opens with a high-level outline of the elements of the PSC regime most pertinent to a finance party’s viewpoint, before going on to provide: a synopsis of key considerations and risks for finance parties clarity on when a finance party could be brought within scope of the regime the implications for secured parties of a restrictions notice being served and ways to reduce those risks, and developments to keep under review Overview of the PSC regime This section offers a concise summary of the PSC regime, drawing attention to points of...

Key differences in the legal risk profile, compared to a direct property purchase In general, a person acquiring the shares in an SPV that owns UK property seeks to emulate the commercial position that would exist on a direct purchase of that property. Typically, property-related points are handled through replies to enquiries and the buyer’s own investigations, with any other issues dealt with separately via due diligence and the corporate documentation. Nevertheless, the risk profile of an SPV transaction is, unavoidably, quite different from that of buying the property directly. Two principal reasons explain this: on a direct purchase, the buyer can rely directly on property searches and the process of land registration to secure good title to the property, free of encumbrances. In an SPV share acquisition, those searches provide only indirect protection the purchaser of SPV shares will inherit, albeit...

This Practice Note offers a primer on the standard provisions you would expect in a straightforward facilities agreement used in leveraged acquisition finance. It outlines the likely funding sources for leveraged acquisitions, then highlights the principal respects in which a typical leveraged facilities agreement departs from a standard investment‑grade facilities agreement. It then walks through each section of a conventional senior leveraged finance facilities agreement. For an introductory guide to acquisition finance, see Practice Note: Introductory guide to acquisition finance, and for a glossary of commonly used terms and jargon, see the Glossary of acquisition finance terms and jargon. Sources of finance for leveraged acquisitions—impact on documentation Senior facilities represent just one of several potential funding routes for leveraged acquisitions; this section briefly surveys the available options. Acquisition finance transactions are typically structured with a blend of debt and equity. The debt element may...

Introduction Once a security interest has been properly created, it binds the security provider and the secured party. That said, it does not automatically bind others, such as a liquidator or administrator of the provider. In many situations, additional steps are needed to 'perfect' the security. Perfection is the process by which a security becomes enforceable against certain third parties (though not necessarily all). For guidance on which third parties may remain unaffected even after perfection, see The difference between perfection and priority below. There are several methods of perfection, and the appropriate approach for any given security interest depends on: the nature of the security interest granted the nature of the entity granting the security, and the nature of the asset which is secured For further explanation of the purpose of perfection and the available methods, see Practice Note: Perfecting...

Intercreditor agreements Intercreditor agreements are intricate, highly detailed frameworks between two or more creditor groups, requiring careful, case-specific scrutiny. That scrutiny spans the extent of rights and safeguards afforded to each creditor class in each case, and whether the structure, taken as a whole, functions economically within the context of the relevant lending arrangements. For information on intercreditor arrangements in a general context, see Practice Notes: Introductory guide to Intercreditor Agreements Intercreditor payment priorities and requisite majorities Basic introduction to super senior, senior, mezzanine and junior debt Intercreditor agreements are regularly encountered in real estate finance because many lenders are only willing to lend on a senior basis up to a specified loan to value, which varies from deal to deal by reference to the nature of the underlying real estate, the ultimate risk profile of the transaction, and prevailing market...

Entitlements arising under insurance policies constitute contractual rights. A lender may obtain security over an insurance policy through an assignment granted as security, effected by way of security. Additional protections can also be deployed in relation to insurance, including noting the lender’s interest on the policy or arranging co-insurance status for the lender. These alternatives take varied forms and deliver distinct advantages to the lender. This Practice Note concentrates on the issues that arise when taking security over rights under insurance policies. For general guidance on securing contractual rights, refer also to Practice Note: Taking security over contractual rights in general. Nature of insurance policies Rights arising under insurance policies are intangible assets rather than physical property. They sit within the class of contractual rights. Such a right is a chose in action (or thing in action), that is to say, a claim...

What is a letter of non-crystallisation? When carrying out title due diligence on property owned by a company, the existence of a floating charge may well be revealed. See Practice Notes: Pre-contract searches— Company search and Pre-completion searches— Company search. In such circumstances, a letter or certificate of non-crystallisation might be needed in order to confirm that: the floating charge has not crystallised in relation to that specific property no action has been taken that has caused, or would cause, the charge to crystallise and attach to the property, and the chargee agrees to the property being sold, or to a second floating charge being created over it This confirms the company can transact with the property (still subject to any fixed charges and other title restrictions and limitations). Either the chargee or the chargor may issue the letter. However, it is better to...

Scope of this Practice Note Land (or real property) is routinely provided as collateral for borrowing. In this setting, land is more significant than some other assets, as it may serve in personal lending scenarios (e.g. home purchases) just as much as in commercial lending transactions......

Stop Press: The LMA Private Placement papers are at present labelled for reference only, while the LMA considers the future path and purpose of these forms. Introduction Securing private placements across Europe is inherently dependent on local rules: documentation style, customary practice and governing law materially vary from country to country and from one jurisdiction to the next within each market. For businesses seeking to place privately in the UK, or to approach investors accustomed to English law, the Loan Market Association (the ‘ LMA’) has produced a set of English law-based template papers known as the Pan- European Private Placement ( PEPP) documentation. These templates were created to act as a practical springboard for issuers and investors alike, encouraging higher deal throughput and wider recognition of private placements as a credible funding method. Although the LMA labels these forms as ‘reference only’...

ISDA documents The 1992 and 2002 editions of the ISDA Master Agreement (together, the Master Agreements) are standard-form documents issued by the International Swaps and Derivatives Association, Inc ( ISDA). Within this Practice Note, any reference to a Section of a Master Agreement or a Part of a Schedule should be read as a reference to the 2002 ISDA Master Agreement and its Schedule, unless stated otherwise. For general guidance on negotiating ISDA Master Agreements, see: Introduction to negotiating ISDA documents. Section 6— Early Termination Section 6 ( Early Termination) of the Master Agreement explains the consequences that follow the occurrence of an Event of Default or a Termination Event, as described in Section 5 (see Practice Note: Scope of the ISDA Master Agreement— Section 5 ( Events of Default and Termination Events)). It also sets out the way the close out netting mechanism operates after an Event of...

Practice Note This Practice Note is intended to offer information and hands-on guidance on English law subscription agreements for solicitors advising debut issuers of debt securities. It concentrates on debut issuers because, once an issuer has come to market, documentation for later offerings typically tracks very closely the papers used for that initial transaction; accordingly, the first deal’s documentation phase is the moment when an issuer and its advisers can review the terms in depth and—subject to prevailing debt capital markets norms—shape the form of the documents. The Note proceeds on the basis that debut issuers are unlikely to be large corporates, financial institutions, multilateral bodies (such as the World Bank) or sovereigns that customarily tap the international investment‑grade public debt markets, but rather entities active in particular segments of the market when conditions are favourable or when other funding sources (for example, bank loans) are...

Who can enforce? The ability to pursue enforcement against a bond issuer hinges on whether the bond issue uses a trustee or a fiscal agent. Where a trustee is appointed, the trustee will take enforcement action on behalf of all the bondholders. Where a fiscal agent is appointed, the bondholders themselves must enforce their rights against the issuer, as the fiscal agent plays no part in enforcement. The fiscal agent has no enforcement function. By contrast, the trustee acts collectively for holders when pursuing remedies. For details on the principal parties in a debt capital markets transaction, see Practice Note: Parties in an issue of debt securities. For further discussion of the differing considerations where an issue is structured with a trustee or a fiscal agent, see Practice Note: Parties in an issue of debt securities— Fiscal agent or trustee. If the bonds are issued in...

What does this Practice Note cover? This Practice Note explains the principal features of asset-backed commercial paper ( ABCP), conduits and structured investment vehicles ( SIVs). It also summarises the key legal and regulatory issues that shape their construction and application. What is asset-backed commercial paper? Commercial paper ( CP) is a short-term debt instrument commonly issued by corporates or financial institutions to address near-term funding needs. It is typically unsecured and offered by issuers with strong credit ratings. For more detail on commercial paper, see Practice Note: Commercial paper and euro-commercial paper. ABCP is a type of CP that is secured against pools of assets, most often receivables delivering predictable cashflows. The issuer of ABCP does not itself require a high credit rating; investors assess the calibre and expected cash flow of the underlying collateral rather than the issuer’s credit profile. A wide range of assets may back...

What does this Practice Note cover? This Practice Note sets out an overview of the legal regime regulating gaming and wagering in relation to financial derivatives, with specific reference to the relevant provisions of the Financial Services and Markets Act 2000 ( FSMA 2000) and the Gambling Act 2005 ( GA 2005). It indicates when derivative contracts might be categorised as ‘gaming’ or ‘wagering’ under UK law, and summarises how FSMA 2000 and GA 2005 address their enforceability. Gaming Acts 1845 and 1892 Under section 18 of the Gaming Act 1845 ( GA 1845), every agreement made by way of gaming or wagering was void, and no proceedings could be brought to recover any money won on a wager. By section 1 of the Gaming Act 1892 ( GA 1892), any promise, whether express or implied, to reimburse any person any sum paid by him under, or in...

Commodity Murabaha and Tawarruq Murabaha contracts can be structured to fund working capital or acquisitions, including property purchases. When used in this way, the structure is often termed a commodity Murabaha. A related technique, Tawarruq (sometimes called ‘reverse Murabaha’), operates in a very similar manner, and the labels are frequently conflated, yet Shari’ah draws a distinction between them. Commodity Murabaha is required to satisfy the general Murabaha rules and is chiefly concerned with the conduct of the Islamic financial institution ( IFI). By contrast, Tawarruq is centred on the Customer: the Mustawriq acquires an asset on deferred terms with the express intention of immediately selling it on for cash to a third party. Scholars of Shari’ah do not all recognise Tawarruq as valid; nonetheless, most consider it allowed where the sale complies with Shari’ah conditions. Meeting working capital needs remains among the most...

When is security transferred? Security interests are commonly moved between creditors in situations where: a secured bilateral facility is transferred or assigned from one lender to another, with the related security likewise transferred or assigned; or a security agent or trustee in a syndicated facility resigns and a replacement is appointed. This is distinct from scenarios where a syndicated loan is sold down or shifted by syndicate lenders through loan transfers, assignments or sub-participations. In those cases, there is seldom any need to transfer the security, because transaction security is typically granted in favour of a security agent or trustee, who holds it on trust for and on behalf of the lenders (including new lenders, assignees and transferees). For fuller guidance on security trustees, see Practice Note: The security agent. This Practice Note focuses specifically on the transfer of security, for instance in the...

This Practice Note examines the key financial covenants commonly found in a real estate finance transaction. Purpose of financial covenants Financial covenants are used across many types of commercial finance (see Practice Note: Introductory guide to financial covenants). They are a distinct form of covenant or undertaking, being commitments to meet defined financial thresholds. See Practice Note: Introductory guide to financial covenants— What are financial covenants? Financial covenants enable the lender to oversee the borrower’s financial performance and provide these benefits: they assess the borrower’s financial position using objective, readily measurable criteria they highlight potential financial stress before any payment default arises, allowing the lender to act sooner than waiting for non-payment if a breach occurs, they allow the lender to protect its position by calling an event of default and accelerating the loan/enforcing security, or by potentially requiring mandatory...