PORTUGAL Law and Practice Contributed by: Benedita Aires and Orlando Vogler Guiné, VdA
3.4 Principal Covenants Covenants exist across all the documentation from the various parties. The key covenants are normally legal obligations already under the Securitisation Law and/or Portuguese law generally, so it is more a matter of the docu - mentation providing detail on how they shall be complied with. It is also worth noting that the covenants package is much in line with what would be expected in other jurisdictions, notably under English law agreements, which were the original inspiration for Portuguese securitisation documentation. Among others, the documentation always includes: • a covenant from the relevant issuer to pay, under the terms and conditions of the secu - ritisation notes and/or in the common repre - sentative appointment agreement; • a covenant from the originator to repurchase or substitute receivables not meeting the relevant eligibility criteria (see 3.2 Principal Warranties ); and • various covenants from the servicer (see 3.5 Principal Servicing Provisions ). As far as is known, there has been no actual litigation where the principal covenants package has been discussed in court between transac - tion parties. When a possible matter arises, the transaction parties negotiate and have so far always reached an amicable outcome, including by granting waivers or amending the transaction documentation, with the benefit (where applica - ble) of a noteholders’ resolution. 3.5 Principal Servicing Provisions The Securitisation Law already sets out the key obligations of the servicer – ie, to diligently ser - vice the assets, and to collect the relevant mon -
ies and pass them on to the issuer. The servicing agreements then add further detail, with provi - sions much in line with what can be expected in other jurisdictions, notably under English law agreements, which were the original inspiration for the Portuguese securitisation documenta - tion. A common key provision requires the servicer to service the assets under the same criteria as if they were its own, but the documentation may also contain certain provisions on changes to the servicer’s operating procedures. This typi - cally includes the servicer being restricted from agreeing to certain variations to the receivables agreements with the borrowers, unless the origi - nator repurchases or substitutes them (and that repurchase or substitution is normally capped by a certain threshold, which is usually a cer - tain percentage – eg, 10%, 20% – of the initial principal outstanding amount of the receivables portfolio). The servicing agreements always include a schedule with detailed servicing provisions, including on the segregation and transfer of funds received by the applicable issuer account (and respective periodicity – daily is the most common), to avoid commingling risk within the servicer’s estate. Provisions on information and reporting, includ - ing the servicer report, are also necessary (and even more so following the reporting require - ments under the Securitisation Regulation). Following the publication of Regulation (EU) 2016/679 of 27 April 2016 (GDPR), it is also key to have detailed provisions on data protection procedures and the allocation of responsibilities between the servicer and the issuer (in perform - ing securitisations, the servicer will actively man - age such data and the issuer will essentially be
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