Established in December 2004, Dominion, a Guernsey open-ended investment fund structured as a protected cell company (PCC), offers 12 cells that invest either through life policies in the with-profits funds of Prudential International Assurance or Norwich Union International on either a leveraged or unleveraged basis.
This unique fund structure seeks to combine the benefits of the smoothed (non-volatile) performance of with-profits funds with financial leverage and sophisticated risk management techniques. William Simpson, managing partner of Ogier Guernsey, and senior associate Michaela Jesson have acted as legal advisers to Dominion throughout and were joined by Mark Sperotto and Adrian Elliot of Ashurst in respect of the financing transaction.
Dominion has been highly successful in the two years since launch, achieving assets under management across its cells in excess of Ä400m (£272m). This strong growth looks set to continue unabated, with demand from investors increasing by 47% in 2006. As an integral part of the product, certain cells require substantial amounts of institutional credit finance.
Securitisation by design
A second Ogier Guernsey team advised Guernsey bank NM Rothschild & Sons (CI) in conjunction with Lovells and ABN Amro on the implementation of an innovative funding structure that now gives Dominion access to the international capital markets to provide the required funding at the most competitive pricing possible.
The structure resulted in the creation of Dominion Funding, a
A first in many ways
The securitisation project, which was pioneering in design and construction, is thought to be the first occasion on which an open-ended investment fund structured as a Guernsey PCC has been used to access international capital markets. It is also thought to be the first time a securitisation programme of its type has been successful where the underlying security for such substantial debt is life insurance policies invested in with-profit funds.
PCC history
Since the introduction of the Protected Cell Companies Ordinance more than a decade ago, approximately 70 PCCs have been registered in
Credit issues
Particular issues arose in respect of this transaction which should be considered in any future transaction involving an open-ended investment fund structured as a PCC. As a PCC company it was essential that no cell directly or indirectly supported the borrowing of any other cell, whether contractually within the facility agreements or in the security documents and whether expressly or impliedly — for example, by way of set-off or lien — bearing in mind that a PCC is, and remains, a single legal entity.
Accordingly, each cell involved in this transaction entered into a separate facility agreement and granted security over its own assets pursuant to separate security documentation. In a number of agreements, including the facility agreements and security documents, specific drafting was required to ensure that there was no ‘cross-collateralisation’ by the cells and that no acts or omission by any one cell would render another cell liable.
Also, its status as an open-ended investment fund meant assets that might otherwise have been required to support such borrowing needed to be available in the event that there were net redemptions on any dealing day. Dominion needed to be able to liquidate such assets to provide funds for the purposes of redemption. There were also the interests of other potential creditors, such as service providers, which needed to be taken into account. Again, specific drafting was required in this transaction to cover such issues in a way which was satisfactory both to Dominion, the lenders, other creditors and the regulatory regime.
A number of Guernsey finance sector businesses have assisted in the development and conclusion of this new innovative product for Dominion, which illustrates the quality of the financial and support services available in the island and is a further endorsement for
