Transactional issuesSPV forms
Which forms can special purpose vehicles take in a securitisation transaction?
The Securitisation Law regulates two different types of securitisation vehicles for the Portuguese market:
- FTCs; and
An FTC is a separate portfolio of receivables with no separate legal personality. An undivided ownership interest in the FTC is held jointly by the holders (individuals or corporate) of securitisation units in the FTC, with no liability regarding losses of the FTC.
An FTC structure consists of:
- the fund itself (FTC);
- a management company or fund manager, which manages the FTC under the terms of its fund regulation; and
- a custodian, qualifying as a credit institution, holding the assets on behalf of the FTC.
The fund manager must:
- be a limited liability financial company;
- be an entity approved by the Bank of Portugal;
- have its registered office in Portugal;
- have a minimum share capital of €250,000, represented by nominative shares;
- be exclusively allocated to the management of one or more funds on behalf of the unit holders; and
- include in its name ‘SGFTC’.
Fund managers are subject to specific capital requirements and must have own funds that are equal to, or higher than:
- if they have up to €75 million of assets under management: 0.5 per cent net value of all funds managed; and
- if they have over €75 million of assets under management: 0.1 per cent of the amount exceeding €75 million.
Fund managers can have a number of different FTCs under management. They are responsible for obtaining approval of the incorporation of each new FTC from the CMVM. The incorporation of a fund is deemed to occur on payment of the subscription price of the relevant securitisation units, upon the CMVM’s approval being obtained.
Additionally, a servicer must be appointed under the fund regulation to collect and manage the portfolio assigned to the FTC.
An STC must:
- be a public limited liability company;
- be an entity approved by the CMVM;
- have a minimum share capital of €250,000, represented by nominative shares;
- include in its name ‘STC’; and
- engage exclusively in the carrying out of securitisations, by acquiring, managing and transferring receivables, and issuing securities to fund these acquisitions.
The incorporation of STCs is subject to an approval process with the CMVM and, although they do not qualify as financial companies, this process imposes compliance with a number of requirements that are similar to those arising under all relevant Banking Law requirements.
These requirements may be said to have an impact in terms of the shareholding structure of STCs to the extent that full disclosure of both direct and indirect ownership is required for the purposes of allowing the CMVM to assess the reliability and soundness of the relevant shareholding structure. The same applies in respect of the members of corporate bodies, namely directors, who must be persons whose reliability and availability must ensure the capacity to run the STC business in a sound and prudent manner.
The shares in STCs can be held by one or more shareholders, although ownership is subject to certain requirements. To establish an STC, prospective shareholders must obtain approval from the CMVM, which will only be granted when it is shown that it is capable of providing sound and prudent management.
STCs are also subject to capital requirements and must have own funds that are equal to:
- when it issues securities up to €75 million: 0.5 per cent of the issued amount; and
- when it issues securities worth over €75 million: 0.1 per cent of the excess amount.
In terms of legal attributes and benefits, we believe it is fair to say that both vehicles are quite similar as they both allow for a full segregation of the relevant portfolios and their full dedication to the issued securities. While in a fund structure, this is achieved through the structure itself, as the assets of each fund are only available to meet the liabilities of such fund. In a company structure, certain relevant legal provisions establish a full segregation principle and a creditor’s privileged entitlement over the assets that are so segregated, and that collateralise a certain issue of notes.
This segregation principle means that the receivables and other related assets and amounts existing at a given moment for the benefit of an STC, and that are related to a certain issuance of notes, constitute an autonomous and ring-fenced pool of assets, which is exclusively allocated to such issuance of notes. It is not, however, available to creditors of the STC, other than the noteholders and to the services providers existing specifically in the context of such issuance of notes until all the amounts due in respect of the notes have been repaid in full. To this effect, the assets integrated in each autonomous and ring-fenced pool of assets are listed and filed with the CMVM and subject to an asset identification code that is also granted by the CMVM.
In addition to the above, and to render this segregation principle effective, the noteholders and the other creditors relating to each series of securitisation notes issued by the STC are further entitled to a legal creditor’s privilege (equivalent to a security interest) over all of the assets allocated to the relevant issuance of securitisation notes, including assets located outside Portugal. In fact, according to article 63 of the Securitisation Law, this legal special creditor’s privilege exists in respect of all assets forming part of the portfolio allocated to each transaction related to an issuance of notes. This has effect over those assets existing at any given time for the benefit of the STC that are allocated to the relevant issuance of securitisation notes.SPV formation process
What is involved in forming the different types of SPVs in your jurisdiction?
The Securitisation Law establishes two types of securitisation vehicle that are subject to different forms of incorporation, but are similar in legal attributes and benefits as they both allow for a full segregation of the relevant portfolios and their full dedication to the issued securities.
While in a fund structure this is achieved through the structure itself, as the assets of each fund are only available to meet the liabilities of such fund (see question 15), in a company structure, certain relevant legal provisions establish a full segregation principle and a creditor’s privileged entitlement over the assets that are so segregated and that collateralise a certain issue of notes. Also, costs, timing and transaction documents to put together a securitisation transaction under the Securitisation Law are very similar (see question 15).
The choice of using an FTC or an STC structure in a given securitisation transaction is essentially left to investors, who will be more familiar with the pool separation concept provided by a fund, rather than a legal creditor’s privilege (see question 25). Therefore, historically, securitisations in Portugal used FTCs because of market perception and the indirect link to a foreign jurisdiction being more usual for securitisation purposes.
Initially, in securitisations transactions in the Portuguese market:
- the FTC acquired the assets and issued securities (securitisation units); and
- an SPV (generally in Ireland or Luxembourg) subscribed for the securitisation units and issued notes, which were purchased by the final investors.
This was essentially investor-driven, as it was felt that it would be difficult to place units with investors (as they are not pure debt instruments but quasi-capital instruments).
Since the first Portuguese securitisation with an STC in 2004 under which tax claims and social security claims’ credits were assigned by the Portuguese state to Sagres, STC, SA, the STC has spread in the market and has been generally accepted by institutional investors. In recent years, securitisations have essentially adopted the STC, with a direct issuance out of Portugal where the assignment of loans are fully governed by Portuguese law and subject to full supervision of the CMVM.Governing law
Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?
When an assignment of credits for securitisation purposes is executed under the Securitisation Law, the securitisation vehicle is incorporated in Portugal under the Securitisation Law and the legal requirements and licences are requested to the CMVM - namely the attribution of the asset-identification code, which enables the full segregation of the asset pool - such assignment of credits shall be governed by Portuguese law. However, there is nothing preventing the remaining transaction documents of a given securitisation transaction from being governed by other laws, and it is usual that, for instance, the accounts agreement of a given securitisation transaction is governed by the law of incorporation of the relevant bank being mandated by the issuer to perform the role of accounts’ bank.
Portuguese law does not generally require that an assignment of receivables is governed by the same law that governs the assigned receivables. However, our experience (and that of the Portuguese authorities) is that assignment agreements for Portuguese-originated receivables have usually been governed by Portuguese law.
In any case, given article 14 of EC Regulation No. 593/2008 (the Rome I Regulation) and, when the Rome I Regulation does not apply, the risk that a Portuguese court would attempt to enforce a solution similar to that which is set out therein, the parties to an assignment of Portuguese-originated receivables for securitisation purposes should comply with the obligor notification procedures or exemption of notification procedures set out in the Securitisation Law.Asset acquisition and transfer
May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?
As to the purchase of new assets by the issuer of the securitisation securities, and without prejudice to what is above mentioned as to the assignment of future receivables (see question 11), continuous sales would be possible under the Securitisation Law provided they are in compliance with the eligibility criteria required under the Securitisation Law and the original receivables agreement does not foresee any restrictions on the assignment. However, sellers have rather opted to carry out securitisation transactions with revolving periods for assignment of additional receivables on a periodic basis, against payment out of collections and additional funding by issuance of further notes, rather than continuous sales.
Also, the Securitisation Law imposes a restriction on the transfer of securitisation transaction assets, whereby the issuer may only assign receivables to FTCs or STCs pursuant to article 45(1) of the Securitisation Law. The issuer may further assign securitised receivables in accordance with article 45(2) of the Securitisation Law in the following cases:
- non-compliance with the obligations arising from the securitised receivables;
- retransfer to the assignor and acquisition of new loans in replacement, if there are changes to the receivables features when renegotiating the respective conditions between the relevant borrower and the assignor;
- reassignment to the originator whenever there are latent defects on the securitised receivables; and
- when the transfer is envisaged to all receivables in the segregated pool of assets of an issuance of securitisation notes being subject to redemption, to the extent that the principal outstanding balance of the relevant receivables is equal to or less than 10 per cent of their initial principal outstanding balance, as of the date of the assignment for securitisation purposes.
The Securitisation Law further requires that the receivables assigned by the Portuguese state and the Portuguese social security for securitisation purposes may be transferred by the relevant securitisation vehicle to STCs and FTCs only, subject to the relevant assignor’s prior consent.Registration
What are the registration requirements for a securitisation?
See the answer to question 5 on registration of STCs and FTCs.
There are no specific formality requirements for an assignment of credits under the Securitisation Law. A written private agreement between the parties is sufficient for a valid assignment to occur (including an assignment of loans with underlying mortgages or other guarantees subject to registration under Portuguese law). Transfer by means of a notarial deed is not required. In the case of an assignment of mortgage loans, the signatures to the assignment contract must be certified by a notary public, lawyer or the company secretary of each party under the terms of the Securitisation Law, such certification being required for the registration of the assignment at the relevant Portuguese Real Estate Registry Office.
Additionally, the assignment of any security over real estate or of an asset subject to registration in Portugal is only effective against third parties acting in good faith further to registration of such assignment with the competent registry by, or on behalf of, the assignee. The assignee is entitled under the Securitisation Law to effect such registration.
As mentioned above, in order to perfect an assignment of mortgage loans and ancillary mortgage rights, which are capable of registration at a public registry against third parties, the assignment must be followed by the corresponding registration of the transfer of such mortgage loans and ancillary mortgage rights in the relevant Real Estate Registry Office.
The Portuguese real estate registration provisions allow for the registration of the assignment of any mortgage loan at any Portuguese Real Estate Registry Office, even if the said Portuguese Real Estate Registry Office is not the office where such mortgage loan is registered.
The registration of the transfer of the mortgage loans requires the payment of a fee for each such mortgage loan.
Concerning promissory notes, the usual practice is for these to be blank promissory notes in relation to which the originator has obtained from a borrower a completion pact that grants the originator the power to complete the promissory note. In order to perfect the assignment of such promissory notes to the assignee, the assignor will have to endorse and deliver these instruments to the assignee.
The assignment of marketable debt instruments is perfected by the update of the corresponding registration entries in the relevant securities accounts, in accordance with the Portuguese Securities Code.Obligor notification
Must obligors be informed of the securitisation? How is notification effected?
Article 6(1) of the Securitisation Law establishes a general rule pursuant to which the assignment of the receivables becomes effective towards the obligors upon notification of the sale of the receivables. However, a relevant exception applies under article 6(4) of the Securitisation Law: the assignment of receivables becomes immediately valid and effective between the parties and towards the obligors upon the execution of the relevant assignment agreement, irrespective of the obligor’s consent, notification or awareness, when the assignor is, inter alia, a credit institution or a financial company.
Note that notification to the obligors is generally required, even in the case of article 6(4) of the Securitisation Law (as described above), when the servicer of the receivables is not the assignor of the receivables. Also, in the case the relevant receivables contract expressly requires the consent or notification of the obligors, then such consent or notice is required in order for the assignment to be effective against such obligors.
Under article 6(6) of the Securitisation Law, any set-off rights or other means of defence exercisable by the obligors against the assignee are crystallised or cut off on the relevant date the assignment becomes effective:
- regardless of notification when such notice is dispensed as above; or
- upon notification or awareness of the debtor when such is required.
Under the Securitisation Law, when applicable as per the procedure described above, notification to the debtor is required to be made by means of a registered letter (to be sent to the debtor’s address included in the relevant receivables contract), and such notification will be deemed to have occurred on the third business day following the date of posting of the registered letter.
There is no applicable time limit to the delivery of notice to the obligors, taking into account in any case that, if no exception applies, the assignment shall only be effective towards the obligors upon delivery of the relevant notice. The notice can be delivered after commencement of any insolvency proceedings against the obligor or against the seller, and the contractual documents for securitisation transactions usually include provisions to allow the assignee to be able to notify all the obligors in the event the seller or assignor does not do so. From our past experience, we may say that the CMVM usually requires that the notice of assignment to the borrowers is delivered within a period of three business days as from the relevant assignment, although there is no formal deadline required under the Securitisation Law.
When required, notice of assignment of credits must be given to each obligor, even though notice may be given for future credits.
What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 provides for the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the General Data Protection Regulation, GDPR). Law no. 67/98 of 26 October 1998 continues to apply to personal data processing in Portugal, pending approval of the internal law which will complement and apply certain provisions of the GDPR for Portugal.
Pursuant to the GDPR, any processing of personal data requires express consent from the data subject, unless the processing is necessary in certain specific circumstances as provided under the relevant laws. Transfer of personal data to an entity within a European Union member state must be notified to the relevant data subjects and, depending on the intended terms and purposes, must be authorised by said data subjects.Credit rating agencies
Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?
The Securitisation Law does not contain any specific provisions governing the relationship between credit rating agencies and issuers of securitisation securities.
Although no specific provisions exist within the context of securitisation transactions, we may say that rating of securitisation issues in Portugal has been severely affected by the banking sector crisis and the economic instability of the past four years in that country; in particular, the financial adjustment programme outlined and controlled by the International Monetary Fund, the ECB and the EU, as well as recent developments in the Portuguese banking sector. The rating of securitisation issues in Portugal is still affected by related caps on Portugal’s national debt.
However, the recent growth of the Portuguese economy has positively impacted the ratings of Portugal’s national debt, which may impact a rating’s attribution to securitisation issues.Directors’ and officers’ duties
What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?
See question 15 as to board, administration and independence of FTCs and STCs.Risk exposure
Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?
Although the Securitisation Law does not foresee specific requirements as to retention obligations for securitisation transactions, Portugal, as an EU member state, is subject to European rules and regulations and, in particular, with the entering into force of Regulation (EU) 2017/2402, to the risk retention rules laid down in such regulation.
In itself, the originator, sponsor or original lender of a securitisation shall retain on an ongoing basis a material net economic interest in the securitisation of not less than 5 per cent - interest being measured at the origination and determined by the notional value for off-balance-sheet items. Where the originator, sponsor or original lender have not agreed between them who will retain the material net economic interest, the originator shall retain the material net economic interest. Multiple applications of the retention requirements for any given securitisation are not allowed and neither the material net economic interest may be split among different types of retainers (nor, likewise, subject to credit-risk mitigation or hedging).