CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Streamlining Documentation for Cross-Border Corporate Aircraft Financing Closings: Sale-Leaseback Transactions Utilizing a Delaware Special Purpose Vehicle

By: Renata Leal-Niemela, COGENCY GLOBAL INC. on Tue, Jul 24, 2012

Successfully closing an aircraft financing deal takes time and attention. A variety of factors, including the financing structure and the jurisdictions governing the transaction documents, must be taken into account in preparation for these types of closings. While it can be challenging to assemble all of the required pre-closing documentation to ensure the delivery of the aircraft on the scheduled closing date, even the most complex transactions can be streamlined to facilitate successful closings.

Aircraft financingTiming of Tasks is Critical
One common financing structure for purchasing an aircraft is a sale-leaseback arrangement using a Special Purpose Vehicle (“SPV”), such as a Delaware Limited Liability Company. Some of the tasks related to structuring this type of transaction include the formation of an SPV, appointing an Independent Manager, arranging for an Agent for Service of Process and legalizing the documentation. While these tasks may seem straightforward, coordinating the timing of them often proves to be more challenging than it would seem.

Using pre-closing and post-closing checklists, such as the ones below, can help minimize delays and problems and keep your closing on schedule.  Note the items listed below are only a sampling of what may be required. Requirements for each transaction need to be customized for each deal in accordance with what is agreed to among the parties in the transaction.

Pre-Closing Checklist

  1. Form a Delaware SPV, generally a Limited Liability Company.

  2. Obtain a certified charter document of the SPV from Delaware.

  3. Obtain a Certificate of Good Standing for the SPV from Delaware.
    Timing: In Delaware, all of the above can be accomplished same day. If your SPV is formed in a jurisdiction other than Delaware, it is recommended you check the turnaround time.

  4. Legalize Secretary’s Certificate that may certify (i) the Certificate of Formation, (ii) the Limited Liability Company Operating Agreement, and (iii) certain Resolutions of the Members or Managers of the SPV for use offshore.

    (a.) For Hague Member Countries (i.e., Spain):

    Have document apostilled by Delaware Secretary of State for use in the Hague country.

    Timing
    :
    Turnaround time is approximately 24 hours.

    (b.) For Non-Hague Member Countries (i.e., China):

    • Document must be notarized.

    • Notary’s signature must be authenticated to verify that the notary is duly authorized with a current registration. (Secretaries of State primarily provide this authentication; however, in some states, for example New York, the County Clerk has this authority and there is the added step of going to the Secretary of State to authenticate the County Clerk’s authority.)

      Timing: Same day to 24 hours

    • Authenticated Secretary’s Certificate must be legalized by the Chinese Consulate.

      Timing: In New York, the turnaround time ranges from 2 to 10 days depending on the expedite option chosen and the payment of additional fees. Checking regularly is recommended because this timeframe can vary greatly based on staffing, volume of requests at the Consulate and holiday closings that cause backlogs.

    Important Note: If legalizing a Certified Copy of the Certificate of Incorporation issued by Delaware, the document must be sent directly to the Department of State in Washington, D.C., which has jurisdiction over documents involving Delaware entities (this is the case for any non-Hague member country).

  5. Appoint an Independent Director or Independent Manager

    An Independent Director or Independent Manager, depending on the preferred title of the drafter of the LLC Agreement, is an independent third party appointed to act in a very narrow set of circumstances as set forth in an LLC Agreement. He/she is often appointed to vote on a material action, which is generally: a request to file for bankruptcy, declare an LLC insolvent or sell all, or substantially all, of the LLC assets. The precise definition is contained within the LLC agreement.

    Timing: Engaging the service provider as early as possible in the transaction is recommended to allow the Independent Director or Independent Manager to review the LLC agreement to ensure its role is clearly defined and limited. This also benefits the LLC by ensuring the Independent Manager does not need to be involved in any of the day-to-day operations of the LLC.

  6. Appoint an Agent to Accept Service of Process (a/k/a Process Agent)
    Parties to international cross-border financial transactions frequently select New York or U.K. law to govern their contract documents. New York and the U.K are both widely recognized as preeminent commercial and financial centers. Both have substantial bodies of common and statutory law addressing a broad range of commercial matters that afford parties guidance and predictability, should any legal proceeding be commenced.

    Timing: Engaging the service provider as early as possible in the transaction is recommended; however, same-day or 24 hour turnaround time is possible to support this service from a registered agent company that provides this service. For more details and additional information on this service, please see COGENCY GLOBAL INC.’s article, "Appointing a Process Agent in Cross-Border Transactions."


Post-Closing Checklist

While your transaction successfully closed, keep in mind that the newly-created SPV has post-closing responsibilities that generally include (the following items are only a sampling of post-closing considerations, which can vary depending on the transaction):

  1. Compliance with ongoing statutory entity requirements from state of formation, including Annual report requirements and maintenance of Good Standing status
  2. Independent Manager Services
    Fees are typically paid on an annual basis to the service provider. Consider whether it may be beneficial to have the same service provider for Registered Agent, Independent Manager and Process Agent Services. 
  3. Process Agent services
    Fees are typically paid in advance for full term of appointment at closing or shortly thereafter, because appointments are often irrevocable.

As illustrated above, handling the documentation to close an aircraft financing deal involves many tasks. Coordinating service with Secretaries of State, County Clerks, Consulates and other agencies adds a potential layer of complication. By following logical, step-by-step processes such as the checklists above, you can minimize expensive closing delays and greatly increase the chances of the deal going smoothly.



This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Process Agent