In this edition of Chambers & Partners, the securities team of Morgan & Morgan summarized the key aspects and developments in Panama, where the activity in the securities sector has been performed in recent years as an alternative form of financing.
The guide is available here
Morgan & Morgan advised Cirsa Enterprises S.L.U. in connection with the offering of senior secured notes for an amount of up to €390,000,000
Panama, May 28, 2019. Morgan & Morgan acted as counsel to Cirsa Enterprises S.L.U. in connection with the offering of €390,000,000 4.750% senior secured notes due 2025, issued by Cirsa Finance International S.à.r.l., and to be guaranteed by the Cirsa Enterprises S.L.U. and, among others, Gaming & Services de Panama, S.A.
Cirsa is one of the leading gaming companies in Spain, Italy and Latin America and is engaged in the operation of slot machines, casinos and bingo halls and the manufacture of slot machines.
Morgan & Morgan advised Banco La Hipotecaria, S.A. in the registration and issuance 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 issued 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.
Morgan & Morgan advised Banco La Hipotecaria, S.A. in the registration and issuance of Mortgage Loans Notes for an amount of up to US$60 million
Banco La Hipotecaria, S.A., acting as trustee of the Fourteenth 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$60,000,000 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 Panama by Banco La Hipotecaria, S.A., a general license bank engaged in the origination and securitization of mortgage loans in Panama. 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 Panama 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 issued 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.
Morgan & Morgan advised Banco La Hipotecaria, S.A. in the structuring of its first covered bond program
Morgan & Morgan advised Banco La Hipotecaria, S.A. (BLH) in the structuring of its first covered bond program from which BLH may issue covered bonds pursuant to Rule 144A and Regulation S of the Securities Act of 1933 in series, from time to time, up to a maximum aggregate nominal amount of US$200,000,000. The issuer of the covered bonds is BLH and the bonds are full recourse obligations of BLH with dual recourse to a pool of residential mortgages granted to debtors in Panama assigned by BLH to a Panamanian collateral trust, with BG Trust, Inc., an affiliate of Banco General, S.A., acting as collateral trustee thereof.
The pool of mortgages assigned by BLH to the Panamanian collateral trust must comply with certain pool ratio requirements. KPMG has been engaged as asset monitor in order to periodically review the mortgages and confirm if they are complying with said requirements or not. BG Trust, Inc., as trustee of the collateral trust, is entitled to receive, through BLH as servicer of the loans, all payments of principal and interest that the debtors of the pool of mortgages are obligated to pay under the loan agreements. If BLH complies with certain conditions, it may request the collateral trustee to return to BLH the interest payments (but not the principal) received by the collateral trustee from the debtors. In case BLH defaults on its payments of interest or principal under the covered bonds, the flows generated by the pool of mortgages will be used to pay interest and/or principal to the bondholders and the pool of mortgages may be even sold by the collateral trustee and the proceeds of said sale would be used to pay interest and principal due under the covered bonds.
The net proceeds from the issue of each series of covered bonds will be applied by BLH for its general corporate purposes. Brean Capital acted as arranger and sole book-running manager of the covered bonds. The covered bonds have not been registered under the securities laws of the United States, Panama or any other jurisdiction and may not be offered or sold in the United States, Panama or other jurisdictions absent registration or an applicable exemption from such registration requirements.
Partners Ricardo Arias and Kharla Aizpurua Olmos, and associate Pablo Epifanio, participated in the transaction.
Morgan & Morgan advised Retail Space Holdings Corp. in registering as a Real Estate Investment Trust and offering of Class B Shares
Morgan & Morgan provided legal counsel to Retail Space Holdings Corp., in the process of registering as Real Estate Investment Trust (“REIT”) in compliance with the requirements to benefit from the special tax regime set forth in Paragraph 2 of Article 706 of the Tax Code of Panama. For said purposes, Morgan & Morgan provided advice to Retail Space Holdings Corp. in registering with the Superintendence of the Securities Market of Panama (Superintendencia del Mercado de Valores or “SMV”), the offering and placing of its Ordinary Class B Shares through the Panama Stock Exchange (Bolsa de Valores de Panamá, S.A. or “BVP”) and registering with the General Revenue Office (Dirección General de Ingresos or “DGI”) of the Ministry of Economy and Finance.
MMG Bank Corporation acted as Arranger, Placement Agent, Stock Brokerage Firm, Custodian and Payment, Registrar and Transfer Agent of Retail Space Holdings Corp. and MMG Asset Management, Corp. was appointed as Investment Manager of Retail Space Holdings Corp. Morgan & Morgan worked closely with Retail Space Holdings Corp., MMG Bank Corporation and MMG Asset Management in defining the final terms and conditions of their Ordinary Class B Shares subject of the public offering.
REIT’s that are registered with the SMV, BVP and DGI, and comply with the requirements set forth in the Tax Code and other applicable regulations are exempt from the payment of Income Tax at a rate of 25% at the corporate level. The shareholders of a REIT that comply with the statutory requirements pay Income Tax on the distributions received from the REIT, at the rates established in the Tax Code. However, the REIT’s are required to withhold 10% of amounts distributed at the time of each distribution, in the form of advanced Income Tax, withholding that the shareholder may decide to consider as the definitive and final Income Tax.
Retail Space Holdings Corp., is a holding company of subsidiary companies that, at the same time, own commercial properties throughout the Republic of Panama.
Partners Ricardo Arias and Roberto Vidal, and associates Pablo Epifanio and Ana Cristina Castrellón, participated in this process.
Panama, September 25, 2018. Morgan & Morgan and sixteen attorneys of the firm were recognized in the Chambers Latin America 2019, guide of the best lawyers and law firms across 20 countries of Central America, the Caribbean, South America and Mexico.
The firm has been ranked in the first Bands within the areas of Banking & Finance, Capital Markets, Corporate/M&A, Dispute Resolution, Energy & Natural Resources, Intellectual Property, Offshore, Projects, Real Estate, Shipping and Shipping Litigation.
Likewise, the publication noted as leaders in their areas attorneys Inocencio Galindo, Francisco Arias, Ramon Varela, Roberto Vidal, Simon Tejeira, Jose Carrizo, Luis Vallarino, Ana Carolina Castillo, Allen Candanedo, Maria Eugenia Brenes, Roberto Lewis, Luis Manzanares, Enrique De Alba, Jazmina Rovi, Juan David Morgan Jr. and Francisco Linares.
One of the clients interviewed stated that “Judging by the results that the firm achieves, I can say that their advice is effective and arrives in a timely manner. I would highlight their availability and technical competence”.
About Morgan & Morgan
With over 80 lawyers and 20 practice areas, Morgan & Morgan is a full service Panamanian law firm, regularly assisting local and foreign corporations from different industries, as well as recognized financial institutions, government agencies and individual clients. Of particular note is our continuous advice for clients involved in all stages of the development of important projects related to energy, water supply, construction, oil, mining, public infrastructure, retail, ports, transportation, among others. Learn more at www.morimor.com.
Panama, August 25, 2018. With the topic “Panamanian Fiscal Regulatory Framework in International Securitization”, Mr. Francisco Arias G., partner in charge of the Securities and Capital Markets practice group of Morgan & Morgan, participated as a speaker in the conference Latest Trends in Asset Securitization: Applications to the Panamanian Market. The event was organized by Flex Funds, a firm specializing in vehicles for worldwide investment.
The seminar was held at the Hilton Hotel in Panama City, and was attended by representatives of financial institutions, investment advisors, asset managers, family businesses, among other local and international professionals.
Other topics were discussed in the activity, such as Perspectives and triggering factors in the mergers and acquisitions sector in Central America, the securitization of assets and their applications and the experiences in the securitization of assets in securities firms in Panama.
About Morgan & Morgan
In the sector of capital markets in Panama, Morgan & Morgan focuses on public and private offerings, some with cross border components. The Securities and Capital Markets team of the firm has been involved in numerous transactions involving several billions of dollars. The firm also have assisted many clients in obtaining various licenses from the Superintendence of Securities Markets, including securities brokerage and investment fund administration.
Morgan & Morgan advised Hidroeléctrica Bajos del Totuma, S.A. in the registration for issuance of corporate bonds for an amount of up to US$32,000,000.00.
Morgan & Morgan acted as legal counsel of Hidroeléctrica Bajos del Totuma, S.A., a Panamanian hydropower company, in the registration for issuance of corporate bonds for an amount of up to US$32,000,000.00. The issuance has been registered with the Superintendency of Capital Markets of Panama and will be listed on the Panama Stock Exchange.
The bonds include: (i) secured bonds with a maturity from 2 to 10 years, for an amount of up to US$16,000,000.00, and subject to a revolving facility available for a period of up 10 years counted since the date of registration of the bond issuance with the Superintendency of Capital Markets of Panama; and (ii) non-cumulative subordinated bonds with a maturity of up to 50 years. Interests, maturity and amount of each series of bonds shall be determined and informed in advance by the issuer through a supplement to the prospectus. The proceeds from the issuance of the secured bonds will be used for refinancing the construction of the hydroelectric power plant. The proceeds from the issuance of the non-cumulative subordinated bonds shall be used by the issuer, among others, for capital expenditures.
The secured bonds shall be secured by a collateral trust, whose trustee is Banistmo Investment Corporation, S.A., and which includes as collateral a real property mortgage over the power plant and real estate of the plant, the assignment of the proceeds of the power purchase agreements entered into by Hidroeléctrica Bajos del Totuma, S.A., as well as of the proceeds from the spot market sales, a conditional assignment of the power purchase agreements and other project material contracts, a pledge over the shares of Hidroeléctrica Bajos del Totuma, S.A., and a corporate guarantee issued by Emnadesa Holding, S.A. (its parent company).
Hidroeléctrica Bajos del Totuma, S.A., is a Panamanian company with a hydroelectric concession for the generation of electricity using the waters of the Colorado River, located in the Province of Chiriqui, Republic of Panama, with an installed capacity of 6.3MW. The hydroelectric power plant is currently in operations, generating electricity for national consumption.
Hidroeléctrica Bajos del Totuma, S.A., is a subsidiary of Emnadesa Holding, S.A., a holding company that also owns Empresa Nacional de Energía, S.A. (EMNADESA), another Panamanian company with two hydroelectric generation concessions also located in the Province of Chiriqui, Republic of Panama, and who is also a bond issuer duly registered with the Superintendency of Capital Markets of Panama, and whose bonds are listed on the Panama Stock Exchange.
Partners Francisco Arias and Ricardo Arias, an associates Ana Carolina Castillo and Cristina De Roux, participated in this transaction.