Morgan & Morgan advised Banco La Hipotecaria, S.A. in the registration of Mortgage Loans Notes for an amount of up to US$40 million
Banco La Hipotecaria, S.A., acting as trustee of the Fifteenth Mortgage-Backed Notes Trust (an issuer trust constituted under the laws of Panama), registered Mortgage Loans Notes in three tranches for an amount of up to US$40,000,000 with the Superintendency of Capital Markets of Panama, which notes were successfully placed through the Panama Stock Exchange. Payments due to holders under the Mortgage Loan Notes are guaranteed by a collateral trust constituted under the laws of Panama. The assets of the collateral trust are composed by mortgage loans granted to residents of El Salvador by La Hipotecaria, S.A. de C.V., which is Banco La Hipotecaria’s affiliate in El Salvador and dedicated to the origination of mortgage loans in said country. BG Trust, Inc., an affiliate of Banco General, S.A., is the trustee of the collateral trust. Banco General, S.A. is acting as paying agent of the notes and BG Valores, S.A. acted as local broker dealer of the notes.
This transaction was a cross-border securitization because the mortgage loans originated in El Salvador were sold to a collateral trust constituted under the laws of Panama in order to guarantee the Mortgage Loan Notes, the Series A of which were acquired by a grantor trust in the United States of America constituted by Banco La Hipotecaria, as settlor, and Citibank, as trustee. Said grantor trust intends to sell trust certificates in a Rule 144A/Reg S offering. Payments due to investors under the trust certificates benefit from a guarantee granted by The Overseas Private Investment Company (OPIC), an agency of the U.S. government. The Series B and Series C Mortgage Loan Notes were acquired by local investors in Panama.
Partners Ricardo Arias and Roberto Vidal, and associates Ana Carolina Castillo, Pablo Epifanio and Cristina De Roux, participated in the transaction.
One of the biggest challenges that micro, small and medium enterprises face when trying to settle in and achieve success as profitable businesses is to obtain capital and sources of financing. Sometimes, the most common sources of financial resources – such as bank loans, private equity and public offerings of securities – are beyond the reach of these companies and, consequently, many innovative ideas that could result in booming business for the national economy and for the creation of jobs are not developed.
Another crowdfunding format is the equity crowdfunding model whereby investors provide capital and receive shares or another capital instrument that gives them the right to receive a percentage of the income generated by the business they are financing. There is also the debt-based crowdfunding model, in which investors lend funds on a temporary basis, waiting for the repayment of their investment in a certain period. In these cases, investors usually require that they be paid an interest on the borrowed capital, but models have arisen in which the participants have not demanded any consideration except the return of the amounts given in loan.
Our securities legislation requires that those securities that are going to be publicly offered in the Republic of Panama be registered first with the Superintendence of the Securities Market (hereinafter the “SMV”). The process of registering securities before the SMV consumes time and resources that micro, small and medium enterprises usually do not have. The current regulations include offers of securities that are exempt from registration with the SMV but they only allow the offer of unregistered securities to a small number of people or institutional investors and, thus, these registration exemptions do not work for crowdfunding initiatives whose purpose is to collect small sums of money from a large number of people. In order for crowdfunding to be possible without having to comply with the registration formalities, a new exemption from the obligation to register securities would have to be adopted.
The second regulatory challenge faced by crowdfunding in the Republic of Panama is that, under the Securities Act and the agreements adopted by the SMV, the operator of the Internet site that serves as a platform to facilitate the collection of financial resources have the obligation to obtain an investment adviser license, broker-dealer firm license or stock exchange license. The management of requesting and obtaining these licenses, as well as their subsequent operation, also requires investment of a lot of time and resources that, given the objective of a crowdfunding site to serve as a mere intermediary between entrepreneurs and investors, may not have to be incurred for crowdfunding purposes.
Article 128 of the Securities Act establishes the following: “Public offer or sales of securities to be made by an issuer or an affiliate or by an offerer in the Republic of Panama shall be registered in the Superintendence, unless they are exempted from such registration in accordance with the provisions of this Decree Law and its regulations. An offer or sale made to persons domiciled in the Republic of Panama shall be deemed to be an offer made in the Republic of Panama, regardless of whether it is made from the Republic of Panama or from abroad, unless the Superintendence determines otherwise.”
Paragraph 2 of article 129 establishes that “there are exempted from registration with the SMV offers of securities made by an issuer or an affiliated thereof, or by an offerer of said issuer or affiliate to no more than twenty-five persons altogether, or any such number of persons which the Superintendence may determine and which, within a period of one year, do not have as a result the sale of such securities to more than 10 persons, or any other number of persons which the Superintendence may determine.”
Article 3 of Agreement 1-2001 establishes that the following legal persons qualify as “institutional investors”: (i) banks, insurance companies, reinsurance companies, investment companies registered with the SMV, investment trusts managed by companies with trust licenses, retirement and pensions funds regulated by Law 10 of April 16, 1993, and broker-dealer firms; (ii) legal persons domiciled in the Republic of Panama, with regular operations managing investments for at least two years before the date the offer and/or sale is, which own a patrimony consisting of no less than One Million Dollars (US$1,000,000.00), according to the last audited financial statements and whose principal officers, or in their absence, the majority of Directors and Officers must have at least two years of experience in regular investment management; and (iii) Sovereign States and public entities that by their nature are authorized to make investments.
Therefore, in relation to the exemption of the obligation to register securities before the SMV, it is proposed that public offers of securities, whether of fixed or variable income (and the resale of such securities in the secondary market) that comply with characteristics similar to the following be considered exempt from registration: (i) the securities that are offered by the issuer through an Internet crowdfunding platform duly notified to the SMV (hereinafter, a “Crowdfunding Site”); (ii) the amount of capital that the issuer wishes to collect (the “Requested Capital”) shall be expressed on the Crowdfunding Site, as well as the amount of securities to be offered, its price and the proportion of total capital represented by each security; (iii) the issuer shall establish a period of time during which potential investors may express their willingness and commitment to purchase the securities (the “Commitment Period”); (iv) the securities shall be issued and the issuer shall receive the funds only when the target is met, that potential investors have expressed, within the Commitment Period, their commitment to purchase securities for an amount at least equivalent to the Requested Capital (the “Minimum Target”); (v) individuals or legal entities with an annual income of less than US$100,000.00 may invest no more than 10% of their income within a period of twelve (12) months; (vi) individuals or legal entities with an annual income of more than US$100,000.00 may invest no more than 15% of their income up to a maximum amount of US$100,000.00 within a period of twelve (12) months; (vii) any issuer that has placed securities on the basis of an exempt crowdfunding offer, by reason of having complied with all the requirements, may carry out additional crowdfunding offers; (viii) an offer of securities under the proposed exemption, if adopted, would not prohibit the issuer from making other offers, sales or transactions exempt from registration as established in Article 129 of the Securities Act (for example, the offers of securities that an issuer carries out under a crowdfunding exemption are excluded from the computation of the investors referred to in numeral 2 of Article 129 on private placements); and (ix) issuers that offer securities under a crowdfunding exception could, in any case, try to obtain financing through other sources of funding, such as bank loans and venture capital.
Notwithstanding the foregoing and with the interest of protecting the investing public, the issuers that offer securities based on a registration exemption such as the above, or similar, must be subject to compliance with the provisions of articles 246 and 248 of the Securities Act in relation to the prohibition of incurring, during the process of offering and placing the exempt securities, in fraudulent or misleading acts, in the making of false statements about a material fact or omitting to disclose a material fact.
In addition to an exemption from the obligation to register securities with the SMV, in order for crowdfunding to work as an accessible measure of financing, it is also required that operators of Crowdfunding Sites are exempt from obtaining an investment adviser license, broker-dealer firm license or stock exchange license. For the purposes of the foregoing, it is proposed that operators of Crowdfunding Sites that meet the following requirements be considered exempt from obtaining the above licenses: (i) notify the SMV of the operation of a Crowdfunding Site within five (5) business days following the launching of the Crowdfunding Site; (ii) not recommend, qualify or otherwise provide investment advisory services in relation to the securities offered through its platform; (iii) obtain the information required by Law 23 of 2015 and its regulations from potential issuers of securities; and (iv) adopt terms and conditions under which (a) the operator of the Crowdfunding Site is prohibited and, if it is a legal entity, its shareholders, directors, officers and employees, to purchase securities offered through the Crowdfunding Site, (b) the issuers of securities undertake to issue the securities in case the Minimum Target is met within the Commitment Period, and (c) the persons who wish to invest through the Crowdfunding Sites recognize that the expressions of willingness to purchase securities during a Commitment Period constitute promises to purchase the securities and pay their price in case the Minimum Target is met but granting those persons who have expressed interest in acquiring the securities the possibility of not having to purchase the securities if they communicate their wish to opt out in the financing within a set period of time before the Commitment Period expires.
The exemptions proposed in this document to encourage crowdfunding in the Republic of Panama are based on similar standards adopted in other jurisdictions. On April 5, 2012, the former president of the United States of America, Barack Obama, signed the so-called “Jumpstart Our Business Startups Act,” also known as the “JOBS Act,” which was a law promulgated with the intention of motivating the financing of small businesses in that country and resulted in the adoption of exemptions similar to those suggested here in the securities regulatory framework of the United States of America. This year, Argentina enacted Law 27,349, which, in its Title II, creates the figure of “crowdfunding systems”.
In other words, certain jurisdictions are adopting new rules so that crowdfunding is a real and accessible source for raising capital and financing for micro, small and medium enterprises. The Republic of Panama cannot be left behind in this aspect and the time is still favorable for us to take the necessary actions and measures in order to adopt rules that can help promote crowdfunding not only to our local entrepreneurs but also to attract those foreigners innovators that do not have this possibility of financing in their respective jurisdictions. Being short in this attempt may even cause our local talent to turn to other countries that have rules that encourage and facilitate crowdfunding in order to obtain funds to develop their ideas and, most likely, end up implementing them in the territory of those same jurisdictions who had the vision of accommodating this figure to help them launch their businesses in the beginning.
Partners Francisco Arias and Ricardo Arias, and associate Cristina de Roux contributed with the Panama chapter of Chambers & Partners Securitization Guide 2018.
In this edition, attorneys from eighteen countries summarized the key aspects and developments in each one of their jurisdictions, including Panama, where the activity in the securities sector has been performed in recent years as an alternative form of financing.
The complete guide is available here.
Morgan & Morgan is pleased to announce the promotion of attorney Ricardo Arias to the partnership of the firm.
Ricardo Arias works in the Corporate Law Department of the firm. Mr. Arias holds over ten years of experience advising capital markets transactions. He has represented local and foreign lenders as well as local and foreign developer/borrowers in secured and unsecured financings and project financings. Mr. Arias has been advisor to foreign and local clients on securities placement in Panama and cross-border transactions. He also specializes on setting up investment companies, including Real Estate Investment Funds (REITs). Mr. Arias is also involved in pro bono activities at the firm serving as counsellor of the National Disability Secretariat (Senadis), an autonomous governmental entity that conducts the policies for the social inclusion of the disabled.
This promotion comes to strengthen the usual personalized and skilled services provided by Morgan & Morgan and reaffirms our position as Panama´s leading firm
Morgan & Morgan advised Banistmo, S.A. in the structuring and registration of revolving corporate bonds for an amount of up to US$300 million
Morgan & Morgan advised Banistmo, S.A. in the structuring and registration with the Superintendency of Capital Markets of Panama of US$300,000,000 revolving corporate bonds. The bonds will be issued in different series with maturities ranging from 2 to 15 years and interest rates may be fixed or floating.
Banistmo, S.A. is a wholly owned subsidiary of Bancolombia, S.A. and is one of Panama’s largest banks with more than US$9MM in assets and deposits that exceed US$6MM. The funds received from the issuance of the bonds will constitute a new source of financing for Banistmo and will be used to grant new loans and expand its growing pool of receivables.
In the transaction, Morgan & Morgan’s attorneys worked with the executives of Banistmo’s department of investment banking in Panama and with the members of Bancolombia’s investment banking company in Colombia, knowingly, Banca de Inversion Bancolombia, S.A. The bonds received a local credit rating of ‘AAA(pan)’ from Fitch Ratings.
Partners Francisco Arias and Ricardo Arias, and senior associate Roberto Vidal, participated in this transaction.
Morgan & Morgan advised MMG Bank Corporation in the structuring of a program of revolving corporate bonds for an amount of up to US$100 million
Morgan & Morgan advised MMG Bank Corporation in the structuring of a program of revolving corporate bonds for US$100,000,000 of Corporacion Interamericana para el Financiamiento de Infraestructura, S.A. (CIFI). The bonds were registered with the Superintendency of Capital Markets of Panama.
The issuer of the bonds is CIFI and MMG Bank acted as arranger and is engaged as bookrunner and paying agent of the bonds. The bonds will be issued in different series with maturities ranging from one to ten years and interest rates may be fixed or floating. CIFI is a non-banking financial institution that provides financing for infrastructure and energy projects in Latin America and the Caribbean. The shareholders of CIFI include multilateral financial institutions, banks and state development funds. The funds received from the issuance of the bonds will constitute a new source of financing for CIFI and will be used to grant new loans for infrastructure projects, finance working capital and refinance all or part of its debts. In the transaction,
Morgan & Morgan’s attorneys worked with the executives of MMG Bank’s department of investment banking in Panama and with the members of CIFI’s finance department.
Partners Inocencio Galindo and Ricardo Arias, and associate Pablo Epifanio, participated in this transaction.
Morgan & Morgan advised MMG Bank Corporation in the structuring of a program of revolving short-terms notes for an amount of up to US$50 million
Morgan & Morgan advised MMG Bank Corporation in the structuring of a program of revolving short-term notes for US$50,000,000 of Corporacion Interamericana para el Financiamiento de Infraestructura, S.A. (CIFI). The short-term notes were registered with the Superintendency of Capital Markets of Panama.
The issuer of the short-term notes is CIFI and MMG Bank acted as arranger and is engaged as bookrunner and paying agent of the short-term notes. The short-term notes will be issued in different series with maturities of no more than a year. CIFI is a non-banking financial institution that provides financing for infrastructure and energy projects in Latin America and the Caribbean. The shareholders of CIFI include multilateral financial institutions, banks and state development funds. The funds received from the issuance of the short-term notes will constitute a new source of financing for CIFI and will be used to grant new loans for infrastructure projects, finance working capital and refinance all or part of its debts. In the transaction,
Morgan & Morgan’s attorneys worked with the executives of MMG Bank’s department of investment banking in Panama and with the members of CIFI’s finance department.
Partners Inocencio Galindo and Ricardo Arias, and associate Pablo Epifanio, participated in this transaction.
Morgan & Morgan advised Banco General, S.A. and Banistmo, S.A. in the structuring of an issuance of corporate bonds for an amount of up to US$320,000,000 carried out by Alternegy, S.A.
Morgan & Morgan advised Banco General, S.A. and Banistmo, S.A. in the structuring of an issuance of corporate bonds for an amount of up to US$320,000,000 carried out by Alternegy, S.A. The bonds were issued by Alternegy, and Banco General and Banistmo acted as joint arrangers and underwriters of the bonds. The bonds were registered with the Superintendency of Capital Markets of Panama and listed on the Panama Stock Exchange.
The bonds have a maturity of 10 years, interest will be paid quarterly at a floating rate (minimum 5.5%) and payments of principal will be made every six months with a balloon payment at the maturity date. Alternegy is a subsidiary of Celsia, a Colombian group of companies engaged in power generation, and it operates two hydroelectric power plants in Panama. Repayment of the bonds are secured by collateral trusts constituted under Panama and Costa Rica law. The funds received from the issuance of the bonds will constitute a new source of financing for Alternegy and will be used to repay a bridge loan granted to one of its affiliates, and which had been obtained for the purposes of financing the acquisition and operation of two hydroelectric power plants owned by Alternegy in Panama, namely Lorena and Prudencia; a hydroelectric power plant owned by Bontex in Panama, namely Gualaca; and a wind power plant owned by Planta Eólica Guanacaste, S.A. (PEG) in Costa Rica, namely Planta Eólica de Guanacaste.
Morgan & Morgan also advised Banistmo Investment Corporation, S.A., in its capacity as i) trustee of the Panamanian collateral trust. The assets of said trust include, among others, receivables generated by the power plants operated by Alternegy and Bontex in Panama, a mortgage over the real property owned by Alternegy and Bontex in Panama, a pledge over the shares of Alternegy and Bontex held by Celsia, rights to receive payment under certain guarantee bonds; and ii) beneficiary of the Costa Rican collateral trust, the trustee of which is Banco Improsa and the assets of which include, among others, the flows generated by the Costa Rican power plant operated by PEG, real property of PEG and a movable guarantee over the shares of PEG held by Celsia.
In the transaction, Morgan & Morgan’s attorneys worked with the executives of Banco General and Banistmo’s department of investment banking in Panama and with the members of Banca de Inversión Bancolombia, S.A., Bancolombia’s investment banking company in Colombia.
Partners Ramon Varela and Ricardo Arias, senior associates Kharla Aizpurua Olmos and Roberto Vidal, and associates Ana Carolina Castillo and Cristina De Roux, participated in this transaction.
Morgan & Morgan makes contributions to compilation of articles on the Securities Market of Panama sponsored by the Superintendency of the Securities Market of Panama
Associates Ricardo Arias and Pablo Epifanio, lawyers of the Corporate Law Department of Morgan & Morgan authored articles “Real Estate Investment Trusts (REITs”) and “A glance to compliance measures applicable to the securities market”, both included in Volume IV of the Compilation of Articles on Regulation and Operation sponsored by the Superintendency of the Securities Market of Panama.
The publication was presented by the Superintendency of the Securities Market of Panama during the celebration of the XI Version of the Investor’s Day.
Mr. Arias and Mr. Epifanio are part of the Securities Regulation practice team of Morgan & Morgan specializing in public and private offerings, representing in such transactions, issuers as well as subscribers and providing advice to regulated entities such as securities firms and investment advisors. Throughout their careers, they have acquired extensive expertise on securities offerings and have participated in multiple transactions of that kind, some involving cross-border components and usually involving dollar amounts in the millions.
By Ricardo Alemán, Partner, Labor Law, Morgan & Morgan
Most of holidays and national mourning that are covered by Article 46 of the Labor Code of the Republic of Panama are in November, December and January. In fact, they are considered as such, November 3, 5, 10 and 28; December 8 and 25; and on January 1 and 9.
If the days off indicated in the preceding paragraph coincides with working days by virtue of the weekly working days agreed with the workers, they are paid as ordinary working days; in other words, despite not working during those days, due to the fact that they are considered as mandatory days off, workers shall be entitled to be granted their full salary corresponding to that day, as if they had worked.
Extraordinary Working Days
The situation is different for workers who, as a result of their contracts, have to work on holidays or national mourning. In these cases, workers are entitled to be paid a surcharge of 150% on the wages of their ordinary working day, without prejudice to the right of the worker to be granted any other day off in the week as compensation, which will not be remunerated, given that the 150% surcharge includes the payment of the compensatory day off. However, if the workers work on the compensatory day, that working day, in addition to being paid as an ordinary working day, shall be remunerated with a 50% surcharge.
Workers who work overtime on holidays or national mourning are entitled to, first, apply the surcharge of 150% and, to the result, add the surcharge that corresponds to the overtime working hours on the ordinary working day. In other words, the concept of surcharges on surcharges is applied, as contemplated in the Panamanian labor law.
November, National Holidays
I would like to make clear that November 4th, that this year 2017 coincides with a Saturday, is not a national holiday, so workers hired to work from Monday to Saturday are obliged to work that day and their remuneration will not suffer any variation because it is an ordinary working day. For workers who work from Monday to Friday, that day has no economic impact whatsoever since it is a regular day off that they do not work, according to their respective contracts.
This year 2017, November 5th falls on a Sunday. Workers who, by virtue of their weekly working week must work on that day, are entitled to be paid a 50% on their wages, as it is a Sunday and, in addition, a surcharge of 150% for being a national holiday. On the other hand, as established in Articles 47 and 48 of the Labor Code, Monday the 6th is authorized as a mandatory paid day off. Work on that Monday will entail a 50% surcharge on the ordinary salary, without prejudice to the right to be granted an unpaid day off during the week as compensation. Likewise, working on the day to be given as compensatory implies a surcharge of 50% on the ordinary day.
November 28th, also a national holiday, this year falls on a Tuesday. Until 2013, in those cases, mandatory paid day off was moved to the preceding Monday. However, with the approval of Law 28 of May 4, 2015, which, among others, modified Article 46 of the Labor Code, mandatory days off on holidays or national mourning are granted on the same day of the week in which they fall; that is, they are immovable.
On January 9th, 2018, declared by Law 118 of 2013, as National Sovereignty Day and national day of mourning, and which next year 2018 will fall on a Tuesday, mandatory day off will be on that same day, as it is not transferable to another day of the week, as indicated in said legislation, ratified by Law 70 above mentioned.
Domestic employees are also entitled to enjoy mandatory days off for holidays or national mourning that will be remunerated. If the employer orders or allows them to work on those days, they will be paid with a surcharge of 100% on the daily salary earned.
Recently, as a result of the qualification of Panama to the World Cup 2018 in Russia, Executive Decree No. 69, of October 11th of the current year, was issued, which ordered the closure of private offices that day, nationwide, declaring it as a day off.
Without debating at this time on the legality or not of the decree in question, upon declaring Wednesday, October 11th as a day off, workers who worked that day were entitled to receive their salary with a 50% surcharge, with no obligation to receive another day as compensatory day off.
Decree No. 69 excluded from closure to hospitals, hotels, restaurants, airlines, supermarkets, shopping centers, utility companies, places of entertainment and recreation. Consequently, the workers hired to work in the companies or activities indicated above have no right to receive any surcharge on their working day, because for them October 11th was a regular workday.