Asset-backed Financings Across Multiple Jurisdictions: Executing in a Dynamic World

Pros:

• Provides the best ring fencing protection as it gives the security trustee a proprietary interest in the entire balance of the bank account that should survive the insolvency of the originator[3] and enable the security trustee to take ownership and control of the account upon enforcement
• Ideally supported by an agreement from the account bank to waive rights of set-off and counterclaim and agree to the relevant account control regime pre and post default

Cons:

• Third party account banks not otherwise involved in the financing may have no incentive to cooperate and agree to the above
• Originator may be subject to negative pledges in other facilities restricting such security
• The account may be an omnibus account of the originator through which non-securitised cash may flow hence a reluctance of the originator to provide security or otherwise accede control over the account to a third party

Pros:

• Provides contractual comfort against the originator and the account bank

Cons:

• Does not of itself provide a proprietary interest in the balance of the bank account which generally survives the insolvency of the originator
• Can be difficult to negotiate any meaningful protections with an unincentivised third party account bank unwilling to give up customary banker rights and control (especially where the account bank has a broader financing relationship with the originator pursuant to which the account bank may be a creditor of the originator)
• Some banks not willing to agree to anything for fear of potential liability (eg acting on incorrect instructions)
• Cash is fungible giving rise to the administrative burden to determine any correct allocation of cash between the asset-backed financing and the originator  

Pros:

• Better than nothing

Cons:

• The extent of protection this provides for the financing will vary from jurisdiction to jurisdiction

Refers to arrangements whereby parties agree an appropriate timeframe within which the originator must remit collections from its account to an account of the SPV over which the security trustee has security.

Pros:

• Can provide reduced remittance periods to decrease commingling risk upon the occurrence of credit related triggers such as cross-default
• Test ongoing compliance against detailed and regular reporting

Cons:

• No control over the bank account
• No contractual recourse against the account bank
• Exposed to the risk of the account bank exercising usual banker rights such as set-off

• Enforceability of the English law note documents (including the notes, the trust deed, the agency agreement and the note subscription agreement)
• Enforceability of the English law charter agreements and the English law guarantee of the charterer’s obligations under the charter agreements (together with applicable insurance proceeds, the underlying receivables)

• Enforceability of the Hong Kong law transaction documents including the following security documents:
  • the share mortgages over the shares in the Hong Kong incorporated vessel 
  • the bank account charge over the issuer’s bank account in Hong Kong
• Due incorporation, capacity, authorisation and execution in respect of the Hong Kong incorporated vessel owners   

• Enforceability of the Panamanian law governed vessel mortgage

• Enforceability of the Liberian law governed vessel mortgage

• Due incorporation, capacity, authorisation and execution in respect of the Cayman Islands incorporated issuer 

• Due incorporation, capacity, authorisation and execution in respect of the PRC incorporated keepwell provider

• Due incorporation, capacity, authorisation and execution in respect of the Guernsey incorporated charterer

• Due incorporation, capacity, authorisation and execution in respect of the Switzerland incorporated guarantor of the charterer’s obligations under the charter agreements