Guide To Banking And Finance In Ireland 2019

Author:Mr Peter O'Brien and Ross Forde
  1. Loan Market Panorama

    1.1 The Impact of Recent Economic Cycles and the Regulatory Environment

    The availability of credit continued to increase in 2018, particularly for businesses engaged in commercial real estate. The source of this credit, however, has shifted away from solely traditional lenders to a mixture of banks, mezzanine lenders and non-bank lenders. After the financial crisis, increased regulatory pressure on banks as a whole to deleverage and reduce their loan books left a liquidity gap in the market, which non-bank lenders took advantage of.

    The most significant effect on the Irish loan market will undoubtedly be Brexit. It is impossible to predict exactly how the loan market in Ireland will be affected by the planned exit of the UK from the EU. A potential loss of "passporting" rights arising from Brexit does raise concern for lenders based in the UK, but many have opened or are in the process of opening branches in Ireland to avail of the "passporting" advantages within the EU.

    Another interesting development is the growing adoption of Irish law as the governing law of international finance contracts in preference to English law.

    1.2 The High-yield Market

    Irish entities in various industry sectors may be involved in high-yield bond transactions, often as borrowers and guarantors, and in certain circumstances as high-yield bond issuers.

    Irish incorporated special purpose vehicles (SPVs), often referred to as "Section 110 companies", are normally used as high-yield bond issuers in certain European high-yield transactions, often to avoid covenant breaches or local law restrictions on guarantees of securities. Section 110 companies are named as such because Section 110 of the Taxes Consolidation Act 1997 provides for special tax treatment for "qualifying companies". Favourable tax laws allow these structures to be, in most cases, tax neutral (with no annual minimum profit or "spread" required at the SPV level) and a "quoted eurobond" exemption, together with numerous double taxation treaties, allows interest on securities to be paid gross. A minimal share capital requirement makes incorporating an Irish SPV an easy process.

    European high-yield bonds are normally marketed as private placements, primarily to attract US investor interest as well as participation from European investors. Such transactions are usually led through London or the USA and so New York law or English law are typically the governing laws of such...

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