The Finance Brief - 1 November 2011
Welcome to the second edition of The Finance Brief in which we consider issues which may arise for lenders throughout the different stages of transactions and involving a variety of assets – from structuring the deal (hedging arrangements and VAT issues to take into account), drafting issues (the recent changes to LIBOR), moving on to post completion items (registration of charges for overseas companies) and finally, guidance on enforcement procedures (in relation to trophy properties). As always, please see the list of contributors to this edition below, and feel free to contact them directly for further information and advice on their particular topic.
Hannah Salton, Editor
Hedging Loans: Issues for the Lender and Swap Provider
All too often in financing transactions the strategy - and documentation - to be employed by the borrower in hedging risks under the loan are left until the last minute and are given insufficient thought. In this article we consider the issues which lenders and swap providers need to consider in the context of the borrower’s hedging, and the risks of failing to pay these issues enough attention.
UK VAT Treatment of Corporate Aircraft
The supply, importation, leasing and maintenance of qualifying aircraft are zero rated for VAT purposes throughout the European Union. This relief is enshrined in Article 148 of Directive 2006/112/EC and applicable to aircraft used by airlines operating for reward chiefly on international routes.
Recent changes to LIBOR
An unusual effect of the recent volatility in financial markets has been that LIBOR rates for Swiss francs have been a negative rate for some fixings. As a consequence some lenders are amending the definition of LIBOR (and, where thought appropriate, EURIBOR) in loan documents to place a floor of zero on the relevant rate in order that when calculating interest the margin is protected. The Loan Market Association published suggested amendments to these definitions in its primary and leverage loan documents on 12 September 2011.
This is not an entirely new phenomenon. The International Swaps and Derivatives Association definitions include negative interest rate provisions which were introduced following low Japanese Yen interest rates in the 1990’s. These always apply, unless parties specify otherwise.
Going, going, gone: overseas company charge registration
The requirement that a charge over property in the UK created by a registered overseas company must be registered with the Registrar of Companies was abolished on 1 October 2011, bringing a final end to what for years had been a very peculiar practice.
The Finance Brief will be back next quarter when, amongst other items, we will be providing a guide to lending to lawyers and the new Solicitor’s Code. Please feel free to let us know if there are any topics which you would like us to discuss in future editions.