UK Law and Practice Contributed by: Guy O’Keefe, Richard Jones, Oliver Wicker and Kate Patane, Slaughter and May
• covenants restricting the seller’s actions to protect the asset pool’s integrity. The declaration of trust over the collection accounts is intended to avoid collections form - ing part of the originator’s (or servicer’s) insol - vent estate, and is typically formally notified to and acknowledged by the collection account bank, so as to reduce the risk that such bank may set off amounts standing to the credit of such accounts against other liabilities of the originator or servicer. 3.2 Principal Warranties The originator, servicer, SSPE and, to a more limited extent, other transaction parties will give warranties relating to certain fundamental mat - ters, such as their capacity, power, authority and solvency. In addition, the originator will give asset war - ranties. Most fundamentally, the originator will confirm that the assets are free from encum - brances and that it has the right and ability to sell them. In addition, the originator will represent that the sold assets comply with a set of care - fully drafted eligibility criteria. If the asset war - ranties are breached, the originator will typically be required to repurchase the affected assets or make a compensatory payment equal to the face value of the relevant assets. 3.3 Principal Perfection Provisions In a securitisation where there is a transfer by assignment, the transfer documentation will normally provide for perfection on (and only on) specified perfection events. Perfection turns the equitable assignment of receivables into a legal assignment, and is important in ensuring the pri - ority of claims and the ability of the securitisation structure to enforce rights under the receivables
in circumstances in which the servicer/originator is not able to do so. Perfection will typically entail the notification of underlying borrowers and, in certain cases, reg - istration of the securitisation’s interest in related assets (for example, at the Land Registry). 3.4 Principal Covenants Key covenants include: • covenants of the issuer to make payments of principal and interest to noteholders in the amount and times required; • covenants of the originator to maintain records of the ownership of the securitisation of receivables and not to do anything that could impair the title of the securitisation to such receivables; • covenants of the servicer to service the receivables in accordance with any applicable legal requirements and the applicable servic - ing standards; and • covenants of any cash manager (or, in the absence of such, the issuer) to apply cash strictly in accordance with prescribed cash waterfalls. Covenants are enforceable by the trustee on behalf of noteholders. Of the above, failure to pay by the issuer will be an event of default under the notes. Breach of fundamental cove - nants by the originator may result in a perfection event. Breach by a servicer or cash manager of its duties is likely to entitle the trustee to termi- nate the appointment and appoint a replacement servicer or cash manager.
3.5 Principal Servicing Provisions Key obligations of the servicer include:
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