USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
reinvestment or revolving periods (temporarily or permanently); • servicer termination events that give rise to a right to terminate the servicer; and • events of default that give rise to a right to accelerate the transaction and exercise rem - edies, including the ability to enforce against collateral (sometimes with collateral sales being subject to additional consent require - ments, unless a sale would generate sufficient proceeds to pay the secured notes in full). Amortisation events typically include: • shortfalls in reserves or over-collateralisation; • outstanding amounts exceeding the applica - ble collateral borrowing value; • delinquencies or charge-offs in excess of specified thresholds; and • servicer termination events. Events of default usually include: • failure to pay principal or interest due on specified classes of notes after applicable cure periods; • the trustee failing to have a first-priority perfected security interest in all (or a material portion) of the collateral; • the issuer becoming a covered fund under the Volcker Rule, required to register under the Investment Company Act, or subject to entity-level taxes and potentially other regula - tory events; • breach of representations or covenants that continue beyond applicable cure periods; and • the issuer becoming subject to insolvency proceedings. Servicer defaults or termination events typically include:
• failure, after expiry of the applicable cure peri - ods, to turn over collections when required to do so; • misrepresentations or breach of covenants; • insolvency; and • often, the occurrence of an event of default. 3.7 Principal Indemnities Principal indemnities cover losses due to a breach by the seller or servicer of their obliga - tions. In addition, it is typical for trustees to be entitled to indemnification under the transaction for any losses and liabilities that may arise other than as a result of their own gross negligence or wilful misconduct and the trustee will also be entitled to indemnification in connection with any directions given by noteholders. 3.8 Bonds/Notes/Securities The primary documentation setting forth the terms of the asset-backed securities or loans in a securitisation are: • indentures or note purchase agreements, in the case of bonds or notes; • trust agreements, in the case of trust certifi - cates and equity tranches; and • credit agreements, in the case of loans. These agreements will typically set forth key economic, structural and payment terms, such as maturity, coupon, payment dates, the pay - ment waterfall, and borrowing base definitions and concentration limits, as well as transfer limi - tations. Indentures, note purchase agreements and credit agreements will also include cove - nants and defaults applicable to the issuer and securitised pool, and set forth the voting rights of noteholders. Trust agreements will specify the governance of the issuer.
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