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Developing trends in fund financing in the context of global markets were the focus of an industry seminar in Guernsey hosted by Carey Olsen on Wednesday, 21 May which pronounced alternative financing options as a strong theme post financial crisis.
Simon Fulbrook, a partner from international law firm King & Wood Mallesons SJ Brewin, joined Carey Olsen London corporate partner, Emma Russell, and Guernsey corporate partner, Andrew Boyce, at the seminar where Guernsey’s position within global fund financing was discussed.
The impact of increased regulation on traditional credit banks, the growing use of alternative sources of finance in Europe and the continued dismantling of the "refinancing wall" were key themes at the event which was attended by representatives from Guernsey's banking and investment funds sectors.
Advocate Boyce who chaired the event opened by asking whether market developments reflected a radical theme or whether changes were more evolutionary: " the key question is are the changes in the market radical or are the deals still using tried and tested models with more subtle changes?"
Mr Fulbrook outlined the current state of the UK debt market with a particular focus on leveraged finance which he described as ‘a very hot area’ in ‘a market that’s certainly getting a lot hotter’:
"This is due in large measure to a refinancing of the deals done in the buoyant pre-crisis debt market. Generally we have seen an uptick in the UK debt market fuelled by primary leveraged buyout activity, increased real estate transactions and high yield bond issuances,” he said.
“The real estate finance market is incredibly active in the areas of London and parts of South East England which are key assets for Guernsey funds. However the regulatory burden on banks is increasing and shaping many legal aspects of transactions as well as the commercial environment. While this is happening in the UK, in some quarters of Europe (an already highly-regulated market) there is a move towards certain de-regulation to stimulate lending.”
The panel gave their views of disintermediation in the market, new channels for the provision of debt in the UK, global trends in the debt market and the overall impact on finance transactions with a particular focus on the impact on Guernsey.
Ms Russell, who joined Carey Olsen as a partner in the firm's London office in December 2013, explored the types of fund finance available from lending providers, focussing on equity subscription lines which are of particular importance in Guernsey given the size of its private equity fund sector. In doing so she looked at some of the key terms relevant to fund finance in limited partnership agreements and facility agreement.
Advocate Boyce focussed on the specific areas of concern for Guernsey within fund finance transactions and outlined the importance of Guernsey's role in global fund finance activity given the size of the fund industry.
“Much of the change we are seeing for Guernsey structures is around where the ability of funds to borrow lies within the structure, the extent of this power and their ability to provide the security required by the banks in the security package."
“With changes to the types of debt providers as well as to the types of finance available more focus is being placed on the Guernsey security, which in turn is pushing the boundaries of our own legislation."
“Being at the leading edge of the investment fund world means that the industry in Guernsey is continuously working to improve the tools that support this and maintaining a legislative framework that enables Guernsey to continue to compete at this level is key.”
