For many years, Ireland has been a leading jurisdiction in which to establish special purpose vehicles (SPVs) for structured financing transactions. The main reason for this has been the attractive taxation regime for Irish SPVs, commonly known as 'section 110′ companies in reference to the provision under Irish tax law that forms the basis of the structured financing industry in Ireland. In addition to the tax benefits, a thoughtful legal and regulatory framework and highly-regarded infrastructure of professional advisers and service providers have all contributed to the success of the Irish structured financing industry.

Pre-credit crunch, Ireland had established itself as a location of choice for the establishment of SPVs for an impressive variety of transactions including asset-backed securitisations, repackaging, collateralised debt obligations (CDOs), collateralised loan obligations (CLOs), warehousing, structured investment vehicles (SIVs) and other structured finance transactions.

It will come as no surprise to note that the flow of some types of transactions (CDOs and SIVs in particular) into Ireland (and indeed elsewhere) have either slowed down spectacularly or frozen entirely since August of last year when the first signs of the global credit and liquidity crises emerged. Indeed many of the high profile stories over the last two quarters have had an Irish aspect to them (Rhinebridge, Cheyne and Sachsen to name a few).

In the current environment one would expect banks, originators, service providers and lawyers to devote considerable time and energy to identifying opportunities to jump start the markets or to spot new trends. Certainly the Irish legal community will have spent a lot of energy over the past six months thinking of how to position Ireland and remain at the cutting edge of structured financing when the markets fully re-emerge.

It would be difficult to find a structured financing lawyer who would not now regard themselves as having become something of an expert in restructuring and insolvency. There is no question that in recent times many lawyers have been kept busy restructuring existing deals. In an industry which has never really experienced a downturn previously, issues are now arising which the market would not have anticipated at the time of setting up CDO and SIV transactions. An optimist might take the view that one potential benefit from the downturn is that the lessons learned from the downturn can only lead to improved documentation and a stronger industry when the markets re-emerge.

Another source of work in recent times is the number of private placements which are being implemented using section 110 companies. Also, the increase in spreads and fall in market value of various asset classes has been seen as an unprecedented opportunity for investors who had the cash and who were not restricted by the lack of liquidity in the market. section 110 companies can be established on the same tax neutral basis in privately funded deals as they can for publicly listed deals. This has meant that Irish SPVs are being used for several warehousing and private structures to enable banks and originators to continue to finance transactions while they wait for the re-emergence of listed deals.

Arrangers are also looking at new types of transactions, some potentially very complex, which will provide unusual exposure for investors, such as insurance linked, commodity linked and carbon emission linked deals. What is encouraging, is that section 110 companies are not only proving resilient in a downturn but appear to be well placed for the trends beginning to emerge post-credit crunch.

One of the more interesting developments over the last 18 months or so has been the increase in the number of Russian and CIS originated transactions coming to Ireland. Irish SPVs have been used for a variety of Russian consumer loan, credit card, and mortgage-backed securitisations, loan participation note transactions, warehousing and other structured finance transactions. The main reasons for using Irish SPVs in such deals are:

- Taxation – as with all structured financing activity in Ireland, taxation is the main driver. section 110 companies can be established on a tax neutral basis and can result in no withholding tax on interest payments for Russian deals.

- Access to investors on European capital markets – European investors are very familiar and comfortable with Irish SPVs. Russian deals which are aimed at attracting European investors can benefit from this familiarity by basing the SPV in Ireland.

- "Protected cell" arrangements – it is possible to establish programmes in Ireland whereby the obligations of the Irish SPV under each series of issued notes is ring-fenced to that particular series. While Ireland does not have a statutory basis for "protected cell" arrangements, it is possible to establish similar arrangements by contract.

- Speed and cost – most structured finance deals can be implemented using an Irish private limited company as the Issuer. Such companies can be established and be ready to enter into a transaction in five business days and have nominal capitalisation costs.

- Common law jurisdiction – often the documents entered into in the context of Russian transactions are English law-governed. Like English law, Irish law is based on common law principles. Transaction counsel often find it easier to draft transaction documents with SPV counsel who are trained under the same basic legal principles.

Another potentially exciting development is the usage of section 110 companies for Chinese property related securitisations. We have seen a number of enquiries for the usage of Irish SPVs for structures that previously used Cayman vehicles. This follows the ongoing trend towards onshore migration of SPVs from which Ireland has benefited.

There is no doubt that the success of Ireland as a structured financing centre has been at the cost of offshore locations such as Jersey and Guernsey in Europe and the Cayman Islands and Bermuda for US-originated deals. The reasons for this include: a general unease with offshore investment (in the case of some investors a prohibition on such activity) and a need to access double tax treaty networks. Among the deals moving onshore include asset-backed commercial paper programmes (coming mainly from Jersey). Pre-credit crunch, an increasing number of US-originated deals were structured through Irish SPVs where previously they would have gone to Cayman. One hopes that this trend will continue for SPVs when the CDO (and CLO) market returns.

While it may not be reported in the media there are certain deals which have not suffered or which, at least, remain active and are successfully adapting to the needs of investors. Chief among these are securitisations of insurance related assets such as catastrophe bonds. In an Irish context securitisations of 'cat bonds' are done through a specialised section 110 vehicles knows as special purpose reinsurance vehicles (or SPRVs). These vehicles are regulated by the financial regulator to enable them to carry on reinsurance activities and are entitled to the exact same taxation benefits as regular section 110 companies.

The Irish structured finance industry has an open platform for consultation with the Irish government. Irish tax and securities law and the regulatory regime in Ireland is regularly updated to respond to the evolutionary nature of the structured finance industry. Last month, the Irish Finance Act brought about the latest improvements for section 110 companies.

Chief among these is the change which enables section 110 companies to be used for securitising greenhouse gas emissions allowances, permits, licences or rights of emission (otherwise known as carbon credits). We are beginning to see activity in this area as originators and arrangers become aware of this development.

Other technical amendments have also been made to make it easier to use section 110 companies in securitisations of private equity investments involving underlying partnerships.

There is no doubt that the last two quarters have been challenging for all involved in the international structured finance industry. As the market takes its first steps back to traditional deals like CLOs and asset-backed securitisations we can be confident in an Irish context that section 110 companies will retain their popularity. Moreover, the prospects of an increasing volume of transactions coming from emerging markets and the general move towards onshore investment presents a great opportunity for those involved in the Irish structured finance industry to build on its impressive track record to date.

Garry Ferguson and Turlough Galvin are partners in the structured finance and derivatives group at Matheson Ormsby Prentice.