Driven by different dynamics, the Cayman Islands, the British Virgin Islands (BVI) and Bermuda have each experienced their own problems in the Covid era – much like the rest of the world – but collectively and individually these sophisticated legal jurisdictions have continued to fare well. Driven by experienced and talented lawyers, strong commercial nous and a well-honed judicial system, the leading global players in the Caribbean can take whatever is thrown at them.
As all jurisdictions were forced to adapt quickly to the coronavirus pandemic, the Caribbean was no exception, with working from home and reduced contact due to social distancing swiftly becoming the norm. The climate has not been without its challenges as multiple lockdowns forced local businesses to suffer and caused substantial disruption to many in the hospitality sector. Indeed, the region’s once-thriving tourism industry continues to stall as travel levels remain low compared to pre-pandemic times – an inevitable blow for Bermuda, the BVI and Cayman – given their significant reliance on international cash injections into the local economy.
However, there is a guarded sense of optimism as offshore firms enter into 2022, with law firms such as Conyers expecting to see local business come back with a bang. ‘With financial services and tourism being core industries, in each of Bermuda, the British Virgin Islands and the Cayman Islands, there is a significant reliance on international business in the local economy. We fully expect the local industries to rebound once the pandemic dissipates,’ says Christian Luthi, chair of Conyers.
‘We fully expect the local industries to rebound once the pandemic dissipates.’
Christian Luthi, Conyers
The vital signs are all there, with the British Virgin Islands already having experienced an increase in visitors, particularly for those on sailing holidays, while in Bermuda, the government has enjoyed the continued success of its ‘digital nomads’ programme, one-year work-from-Bermuda permits, which allows workers and students to work remotely from Bermuda for a year. The venture has seen some 900 relocations to the island in 2021 and is now being rolled over for an additional year.
Similarly, in the Cayman Islands, the government extended its global citizen programme – launched in 2020 – until November 2024, allowing eligible professionals and their families to live and work remotely from the island for up to 24 months. These resourceful initiatives have doubtless been instrumental in lessening the financial shock of the pandemic and hastening economic recovery.
Show of strength
Whatever reversals the pandemic may have wrought, firms in the Caribbean’s offshore markets have behaved true to form, proving resilient amid high levels of deal activity across the board.
Luthi is sanguine: ‘2021 was a good year for Conyers, and for the offshore legal market generally. Despite the disruption of Covid, all of our offices experienced growth.’
Ingrid Pierce, global managing partner of Walkers, asserts: ‘Firms that have adaptable operating styles, are responsive to client demands and have the established technology infrastructure to work in an agile way can grow and develop their businesses. Those with globally integrated corporate and fiduciary businesses have done well. Clients are global and need global solutions with all aspects of their business.’
She adds: ‘We have never been busier across our Bermuda, BVI and Cayman offices. Deal flow hasn’t stopped at all over the past 12 to 18 months.’
Luthi strikes a similar note: ‘Law firms that are well diversified, both in terms of their range of practices as well as their jurisdictional offering, and exposure to different markets, have fared well. This diversity not only facilitates cross-border business and investments, which is key to offshore firms, but it also limits exposure and reliance on any one market or particular practice.’
Indeed, as increased levels of regulation and compliance requirements across the globe make themselves felt, firms with a broad global footprint are proving better able to effectively handle these issues directly.
Notes Pierce: ‘Our regulatory and risk advisory practice has seen significant global growth. It comprises 20+ dedicated regulatory lawyers in total across the Americas, Asia and Europe offering specialist regulatory advice throughout our jurisdictions. The size of the team enables Walkers to effectively and efficiently handle large, urgent and highly complex matters. As regulation increases and becomes more complex, the firm’s ability to handle such matters becomes ever more important.’
Throughout 2021, the cryptocurrency market experienced a record year, with digital assets like non-fungible tokens (NFTs) surging in popularity. This global trend infiltrated all markets and with the financial services industry being a core area of focus for the Caribbean islands, it is unsurprising that law firms saw significant growth in the fintech space. Pierce observes: ‘Bermuda is emerging as a fintech hub and, with that, we are seeing more innovative financial products and services, including NFTs and tokenised funds. We have noted a lot of interest in the digital asset space for different types of segregated vehicles; we expect this trend to continue.’
Luthi agrees: ‘We saw an increase in fund enquires for Bermuda fund launches after a relatively quiet few years. The activity was particularly strong in the crypto space using fund structures to invest in blockchain technology.’
The ubiquitous special purpose acquisition company (SPAC) trend has also taken hold, although how long the boom is likely to last is hard to say.
In spite of gloomy predictions of that market going bust, local firms have continued to see a significant share of SPAC work, with the Cayman Islands being the domicile of choice for around one third of all SPACs globally.
Global managing partner of the Maples Group, Jonathan Green, says: ‘SPACs continue to be a predominant source of work for our corporate teams globally and particularly in the Cayman and BVI practices. This has been an extremely strong area for us.’
‘There has been a significant increase in SPAC IPOs from 56 SPAC IPOs globally in 2019 to more than 500 in 2021,’ adds Luthi. ‘Conyers’ BVI and Cayman offices acted on a number of significant SPAC IPOs in 2021, notably advising ALSP Orchid Acquisition Corp I on its $172.5m IPO on the Nasdaq Global Market,’ Luthi says.
Pierce observes that the Cayman Islands continues to see a significant share of SPACs, ‘appearing as domicile of choice for around one third of all SPACs globally. There is now a lot of work on the deSPAC side – M&A deals and downstream transactions’.
M&A has universally prevailed as a key market driver for offshore firms as well as globally. Luthi points to a list of standout mandates: in BVI the $2bn business combination of Perimeter Solutions and EverArc, and the $860m business combination of APWireless and Landscape Acquisition; in Bermuda, advising Moody’s Corporation on its $2bn bid to acquire RMS, the leading global provider of climate and natural disaster risk modelling and analytics.
The Cayman Islands team advised lithium metal battery supplier SES Holdings on its $3.6bn proposed business combination with NYSE-listed SPAC Ivanhoe Capital Acquisition Corp and Deep Green on its $2.9bn proposed business combination with Sustainable Opportunities Acquisition Corporation. Meanwhile, in Hong Kong, the firm advised electric vehicle company Faraday Future on its $1bn merger with Property Solutions Acquisition Corp, with proceeds from the deal expected to fully finance the launch of the flagship FF 91 production vehicle into the market, realising Faraday’s vision to help drivers and stockholders contribute to the greening of motoring.
Elsewhere, the insurance industry experienced significant M&A activity, with Conyers acting for large US healthcare systems on the amalgamations of their insurance subsidies in the Cayman Islands. Over the last 12 months the insurance industry has been generally busy, with firm leaders noticing an increased demand for debt products.
In Bermuda, Walkers’ Pierce observes: ‘We also saw a noticeable increase in demand for debt products across certain industries. Most notably, in reinsurance, where a number of asset managers – whose investment focus is in insurance-linked securities or collateralised reinsurance – found themselves seeking alternative sources of capital and using debt to help fund renewals in this space.’
‘We have never been busier across our Bermuda, BVI and Cayman offices. Deal flow hasn’t stopped at all over the past 12 to 18 months.’
Ingrid Pierce, Walkers
Conyers advised Sirius International Insurance Group on its merger with Third Point Reinsurance to create a $3.3bn company, SiriusPoint. In addition to direct Bermuda M&A, it saw many non-Bermuda insurance groups around the world being acquired through new Bermuda holding companies, and the firm was involved in several of these transactions.
The pandemic has been unpredictable, and it continues to be so with the cruise ship sector in Bermuda surprisingly materialising as one of Conyers’ busiest focus areas within ship financing – it has advised Viking Cruises on a $700m two-part unsecured, secured notes offering with $350m aggregate principal amount of 7% senior notes due in 2029.
According to Pierce, the region has proven to be ‘robust and flexible’ in response to challenges faced by the cruise ship industry, ‘with more than $15bn in debt and equity raised by key operators through capital market issuances and by Bermuda issuers, with many of the issuances listed on the Bermuda Stock Exchange (BSX)’. She further anticipates that the BSX will ‘serve as a preferred exchange for future debt and equity listings by the industry’. Firms have also seen the return of aircraft asset-backed security (ABS) deals sooner than expected; the aviation industry was another sector hit hard by the pandemic, but its recovery has seen Maples assisting Stonepeak, a leading alternative investment firm, in its inaugural aircraft loan securitisation transaction, SALT 2021-1 – an industry first – as well as Sky Leasing’s debut ABS transaction. Pierce predicts that this trend will continue, with a number of deals already in the pipeline for first quarter 2022 issuances.
Firms in the Cayman Islands continue to see increased activity in corporate insolvency and restructuring work, with no signs of this slowing down in 2022. This is partly due to the impact of the pandemic but also the highly anticipated reforms to the insolvency legislation that are expected to come into force later this year. For distressed companies, the amendments to Part V of the Companies Act specify a new restructuring regime that abandons the prerequisite of presenting a winding-up petition. The reforms are potentially good news for such companies, as winding-up petitions were thought to have adverse reputational or commercial consequences. In addition, Pierce notes that other key benefits include ‘the immediate statutory and worldwide moratorium which will take effect on the filing of the application seeking the appointment of restructuring officers with the Grand Court, similar to a US Chapter 11 or UK administration stay’, therefore increasing the enforcement of Cayman’s restructuring regime in other jurisdictions.
In the British Virgin Islands there is a similar winding-up process, but in situations where this may not be appropriate, Pierce observes that a significant development over the past year was the placing of injunctions in support of claims overseas on a statutory basis. ‘We have already seen these provisions being successfully used to obtain injunctions and expect this to continue to be a feature in 2022,’ she says.
Conyers’ BVI office has already ‘seen a steady upturn in applications to the courts to enforce overseas judgments and arbitral awards, as well as interim applications connected to fraud and asset tracing’. From a litigation perspective, Luthi notes ‘an increase in matters involving licensed segregated accounts companies’ in Bermuda, and more generally, cases concerning trust litigation, insolvency issues and regulatory matters.
Futureproofing
Issues of climate change and sustainability are at the forefront of everyone’s minds following COP26, with environmental, social, and governance (ESG) concerns ‘becoming an increasingly important and integral part of the conversation between managers and investors’, observes Green. ‘We are currently working with leading investment managers and institutional investors in Europe, America and Asia to help implement ESG policies and frameworks into their various fund and other operational infrastructures,’ he says. ‘This provides us with a 360-degree perspective as to how industry leaders are approaching ESG. In many offices we are now recognised as industry leaders and we expect this area to continue to grow strongly over the coming years.’
In September 2021, the Cayman Islands government announced a new climate growth fund in collaboration with the Commonwealth Enterprise and Investment Council – Maples’ Cayman funds and investment management team is advising on this initiative that focuses on businesses and technologies that deliver climate mitigation and adaptation throughout the 54 Commonwealth countries.
ESG has become such a crucial area of consideration that, according to Pierce, it is ‘steering business decisions in a way never before seen as the market increasingly sees both reputational and financial dimensions to ESG risk’. She continues: ‘The growth in investor demand for ESG product offerings, coupled with a global societal push to implement measures to promote sustainable finance, has focused the minds of institutions and legislators alike to ensure that deals, funds, platforms and products are available that strive for returns measured by both monetary and societal KPIs.’
‘SPACs continue to be a predominant source of work for our corporate teams globally and particularly in the Cayman and BVI practices. This has been an extremely strong area for us.’
Jonathan Green, Maples Group
Walkers has advised MPower Partners on the launch of MPower Partners Funds, Japan’s first ESG-focused global venture capital fund, but beyond this, the firm has made internal transformations to further its agenda through its Walkers’ Eco Warriors committee. The initiative focuses on environmental and sustainability issues ‘dedicated to identifying and implementing strategies to reduce our carbon footprint and eliminate any unnecessary waste’. For Conyers, its Bermuda office has seen the consideration of climate change for funds in the insurance-linked securities space. Luthi notes: ‘Bermuda has been positioning itself at the forefront in this market and as such, insurance-linked securities are already recognised by the United Nations as a sustainable development investment class.’
Looking ahead, the Caribbean offshore market faces other issues beyond the pandemic. In addition to environmental considerations remaining a top priority for firms, the Cayman Islands is currently on the EU’s grey list which is under review by the European Council and European Parliament. A potential EU AML listing would result in greater due diligence on transactions involving the region and establish new securitisation vehicles that will create further regulatory questions for clients. Furthermore, at the end of 2021, the OECD introduced rules ‘to assist with the implementation of a landmark reform to the international tax system, which will ensure multinational enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023’.
However, despite the political and economic headwinds thrown at Caribbean firms like the tropical storms that frequently hit the region, ‘business as usual’ is the mantra that keeps coming from management figures at the key offshore firms. Adaptability is key and these nimble outfits are well versed in handling adversity, even Covid.
Luthi sums up the mood: ‘Offshore jurisdictions have a substantial role to play in asset management, financial services, transportation and insurance markets. While it is too early to assess the potential implications, we are confident that offshore financial centres will remain relevant and will continue to adapt and grow for many years to come’. LB