NEW ZEALAND Law and Practice Contributed by: Deemple Budhia, Ling Yan Pang, Fred Ward and Matt Kersey, Russell McVeagh
3.5 Principal Servicing Provisions Servicing of the relevant portfolio is usually undertaken by the originator acting as servicer. A detailed servicing agreement is agreed at the outset of the securitisation. In addition, the origi - nator’s servicing standards are also reviewed by the warehouse lenders or (in the case of rated securitisations) the rating agencies. Under the servicing agreement, the servicer provides both day-to-day management and collection services for the portfolio. The servicer’s appointment can be terminated in certain circumstances, ranging from unremedied breaches of a material covenant to insolvency of the servicer. In some non-bank securitisations, back-up ser - vicers or standby servicers may also be appoint - ed at the outset of the securitisation. 3.6 Principal Defaults The usual defaults used in securitisations include: • failure to pay interest and principal when due (in respect of the most senior class of debt); • failure to perform obligations which have a • withdrawal of material consents; and • invalidity of key programme documents. Covered bond programmes have both issuer- level (the registered bank) and SPE-level events of default. In such cases, additional defaults include a failure to meet asset coverage or amor - tisation tests in relation to the cover pool. Upon an event of default, the notes or warehouse debt is accelerated and the security over the material adverse effect; • insolvency of the SPE;
obligations in the event of a warranty breach and assistance with any perfection process. Trustee and Trust Manager Covenants As described in 1.2 Structures Relating to Financial Assets , the trustee of an SPE will also be subject to restrictions on its activities in order to limit the number of potential credi - tors and manage insolvency risk, among other objectives. This limitation of trustee discretion is combined with obligations on the trust manager to operate the trust adequately in accordance with the parameters set out in the programme documents. For example: • determining amounts payable under the waterfalls; • directing the trustee regarding acquisitions of authorised investments (including new receivables); and • confirming whether certain actions may trig - ger a ratings downgrade. Servicer Covenants The principal covenants given by the servicer relate to how it will service the portfolio, includ - ing: • collecting the receivables; • transfer of funds to the SPE; • holding funds on trust for the SPE; • compliance with the originator’s servicing guidelines; and • compliance with material laws. Warehouse securitisations usually have more bespoke covenants (including additional report - ing obligations) as required by the particular warehouse lenders.
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