PORTUGAL Law and Practice Contributed by: Marta Pontes, Hélder Frias and José António Reymão Nogueira, Uría Menéndez
the capitalisation of interest due and payable. Despite these restrictions, there has been a noticeable increase in the popularity of PIK interest within the Portuguese market in recent years. This trend is largely driven by the grow- ing interest of foreign loan funds in investing in Portugal. Looking ahead, there may be potential for greater utilisation of such finance structures. The Asset Management Legal Regime, in par- ticular, offers increased flexibility regarding the capitalisation of interest by regulated loan funds, which could pave the way for more widespread adoption of PIK loans in the future. 3.3 Bridge Loans Bridge loans have become increasingly more popular in Portugal in recent years, especially among loan funds that finance the initial stages of projects (eg, real estate projects), which tra- ditional lenders are often not willing to fund from a risk perspective. These bridge loans are then refinanced through a term loan facility provided by banks and other institutional lenders. 3.4 Bonds/High-Yield Bonds In recent years, bonds with private placement and complex structures have become more common in M&A transactions in Portugal. This trend can be mainly explained by tax consid- erations, as these structures may benefit from important tax exemptions (eg, withholding tax) provided that the relevant requirements for such exemptions are met (for a more detailed expla- nation, please see 8.2 Withholding Tax/Qualify- ing Lender Concepts ). 3.5 Private Placements/Loan Notes Loan notes are not common in Portugal. 3.6 Asset-Based Financing Asset-based financing is very common in Por- tugal. This type of financing is typically struc-
tured through a term loan facility secured by a comprehensive security package, including mortgages over real estate properties, pledges or financial pledges over shares, pledges over bank accounts and pledges over receivables.
4. Intercreditor Agreements 4.1 Typical Elements
Intercreditor arrangements aim to establish the rights and liabilities of each creditor and deter- mine priorities regarding payments or distribu- tions in cash, enforcement of securities and pro- ceeds of enforcement. These arrangements are sometimes entered into in acquisition finance deals in Portugal, especially in financing struc- tures that involve numerous lenders and inves - tors and where an intercreditor agent is respon- sible for taking action on behalf of the creditors. Intercreditor arrangements are usually subject either to Portuguese law or English law. Contractual Subordination Contractual subordination provisions are usually included in intercreditor arrangements entered into in Portugal. Under these provisions, certain (junior) creditors agree to rank behind other (sen- ior) creditors in the priority for collecting repay- ment from the debtor. In the case of default or insolvency of the debt- or, credit claims must be ranked according to statutory rules (eg, secured claims rank above common and subordinated claims). However, the Portuguese Insolvency Law (Decree-Law No 53/2004, of 18 March 2004, as amended) allows parties to agree on the subordination of certain credit claims.
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