CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
3.6 Principal Defaults In securitisation transactions, the principal defaults include accelerated payment events, events of default and termination events. Both accelerated payment events and events of default will result in changes of cash flow distri - bution order and early amortisation of securities, but accelerated payment events are generally less severe than events of default. Accelerated Payment Events Accelerated payment events generally include: • insolvency of the originator; • occurrence of a servicer termination event; • breach of the servicer’s main obligations under the transaction documents such as the transfer of collections; • the accumulative default rate of the underly - ing assets exceeding a certain threshold; and • failure to appoint a qualified successor within a certain period of time when it is necessary to replace the trustee or the servicer pursuant to the transaction documents. Some accelerated payment events are not caused by a default of participants in the trans - action, but rather circumstances that pose a risk to the main parties to the securitisation or its underlying assets, and which may have a detri - mental impact on the project. Events of Defaults Events of default generally include: • failure to fully pay interest on the highest class of securities within the agreed time; • failure to pay the full principal amount of the securities within the agreed time after the final maturity date; and
• failure to legally and effectively deliver collec - tions to the trustee/plan manager or to defend against the claims of third parties. Termination Events Termination events of the trustee/plan manag - er, the servicer and the fund custodian usually include: • loss of corresponding qualifications; • material breach of contract; • insolvency; or • failure to maintain any required rating. Upon occurrence of any termination event, the meeting of security holders has the power to replace the corresponding institution. 3.7 Principal Indemnities Typical indemnification provisions in securiti - sations include indemnification for breach of contract by the servicer, the fund custodian and other securitisation service providers; and indemnification for the trustee/plan manager’s failure to manage the assets of the SPV in accordance with relevant laws and the transac - tion documents. Specifically, in terms of the orig - inator and the trustee/plan manager, it is gener - ally specified in the transaction documents that the securities are not liabilities of the originator or the trustee/plan manager, and the investors’ right of recourse is only limited to the assets of the SPV; however, the liability for compensation of the originator or the trustee/plan manager in the event of default under the transaction docu - ments is not limited by the aforementioned pro - visions. 3.8 Bonds/Notes/Securities The terms and conditions of the securities/notes are customarily included in the trust agreement/ asset management contract as well as the offer -
43
CHAMBERS.COM
Powered by FlippingBook