Coronavirus (“COVID-19”) has undoubtedly affected lives on a global scale in a way that we thought unimaginable just six months ago. As Governments implement ‘stay at home’ and ‘lockdown’ measures to protect local communities, and businesses small and large are forced to close their doors to adhere to social distancing, we take a look at the impact on the markets and the trend toward debt restructuring and re-negotiation to help firms weather the coronavirus crisis.
Macro-economic risks include the potential for a global recession. We have already seen the impacts on the Asian economy which has been dealing with the COVID-19 outbreak for many more months than the rest of the world, with China’s economy plunging in the early part of the year for the first time in decades. As other countries and regions further behind the curve on the outbreak are now moving into similar lockdowns, travel, hospitality and manufacturing are some of the key industries already experiencing dramatic deterioration in revenue and others are likely to follow the longer this uncertain period continues.
The measures taken to slow the spread of the virus are critical to mitigate the threat to human life and is, and should be, the top priority for everyone. Yet there are unavoidable subsequent impacts on people’s individual finances and the financial health of many businesses. Many jurisdictions have subsequently announced generous financial support packages to support households and businesses severely impacted these necessary social distancing steps, yet there are still unavoidable economic risks. Yet amid the announcement of these important measures to support private business, it is important to remember that the private sector was already heavily leveraged. Debt levels are at an all-time high for corporates and these new policies could mean that some segments of the corporate environment have been left with event larger debt burdens. With all of this in mind, it is perhaps not surprising and certainly sensible, that firms are looking for ways in which to re-negotiate and restructure debt.
We have noticed a trend toward a lot of loans/debt agreements being re-structured in the Irish market through Section 110 of the Irish Taxes Consultation Act and Qualifying Investor Alternative Investment Funds (“QIAIF”), a subset of the Irish Collective Asset-Management Vehicles (“ICAV”) funds products. Leveraging vehicles such as this, companies can make use of tax efficient solutions and segregate multiple debt packages to support the market in the current environment.
For firms looking to acquire outstanding debt for a third party portfolio company at a discount, there are two impacts that should first be considered:
The use of an Irish QIAIF structure can serve as a viable solution to such transactions. QIAIF structures significantly reduce the speed to market for debt transactions through the ability to launch a sub-fund in just 24 hours. Alternatively, on an interim basis, it can be launched through a Cayman structure with a re-domiciliation to the Irish QIAIF when formed and approved for launch. In addition, Section 110 provides a special tax regime were Irish SPVs meet the requirements for ‘qualifying companies’. These companies are often referred to as Section 110 companies and transactions involving these firms may be structured to be tax neutral.
We currently service 28% of the debt securitization market in Ireland and 33% of the aircraft leasing sector within the Section 110 structure. Our core priority during this time it to protect the health and well-being of our employees while maintaining high levels of service for our clients, we have quickly adapted to these developments and enhanced our solutions in this space. For QIAIF ICAVs we are able support clients in finding a route to market and launching their fund within a 2-4 week timeframe.
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