UK Law and Practice Contributed by: Guy O’Keefe, Richard Jones, Oliver Wicker and Kate Patane, Slaughter and May
3.8 Bonds/Notes/Securities The notes are typically constituted by a trust deed or a deed of covenant, with terms and conditions set out in a trust deed. The terms and conditions set out the issuer’s payment obligations, interest provisions, matu - rity dates and redemption rights, and can some - times also set out other provisions, such as cov - enants, representations and warranties, events of default, cash flow waterfalls and provisions regarding ranking and security (although these provisions can equally be found in other related documentation). Either the conditions or the trust deed will set out provisions governing voting and decision making by noteholders. In the case of a public securitisation, the terms and conditions are typically set out in full in the prospectus. 3.9 Derivatives Derivatives are often, but not always, used in order to hedge interest rate basis risk and cur - rency risk; where present, they are usually entered into by the SPE. Commonly encountered derivatives include rate swaps, caps or floors. These derivatives are employed to hedge various risks, as follows: • interest rate swaps mitigate the risk of fluctu - ating interest rates affecting cash flows; • currency swaps are used when the securi - tised assets and the notes issued are in differ - ent currencies, thus protecting against foreign exchange risk; and • caps or floors limit the exposure to interest rate volatility by setting maximum or minimum rates. Aside from the hedging of risk, currency swaps enable the issuance of notes in a currency other than that of the underlying assets, thereby allow -
• the servicing of receivables in a manner that is consistent with and no less favourable than receivables which the servicer and originator have not securitised (and is compatible with the prescribed servicing standards); • compliance with laws, including those regard - ing consumer protection and data protection; • maintaining the necessary regulatory permis - sions; • enforcing the obligations of the underlying obligors; • the preservation of records; and • maintaining segregated collection accounts, taking steps to ensure that underlying obli - gors make payment into such accounts and transferring amounts from such accounts to the securitisation. Breaches of servicing obligations can trigger the replacement of the servicer. 3.6 Principal Defaults Key events of default include: • non-payment by the issuer when due; • breach by the issuer of other obligations under the transaction documents; • misrepresentation; and • insolvency. The occurrence of an event of default, subject to grace periods, would typically entitle notehold - ers to direct the trustee to accelerate payment obligations under the notes and to direct the security trustee to enforce security. 3.7 Principal Indemnities Indemnities are carefully negotiated and vary from deal to deal. In some deals, indemnities are given by the originator in respect of losses caused by the sale of ineligible assets.
447 CHAMBERS.COM
Powered by FlippingBook