The instability caused by the war in Ukraine, inflationary pressures and the increase in interest rates has had an impact on the loan markets in Europe and in Portugal, with an increase in financing costs and stricter conditions for refinancing transactions.

Notwithstanding the recent slowdown in inflation and the lowering of interest rates by the European Central Bank (ECB), suggesting a possible change in the situation, it is still unclear how the loan market will behave considering the economic situation, future prospects and geopolitical uncertainty.

In accordance with the most recent surveys of the Bank of Portugal on the credit market, the criteria followed by Portuguese banks regarding approvals for lending to companies remain unchanged. There has also been no change in the credit terms and conditions applicable to companies, other than a slight decrease in the interest rate and spread. On the companies’ side, the surveys of the Bank of Portugal indicate that demand for bank loans is decreasing.

In recent years, as a result of the regulatory environment, we have seen an increase in direct lending because of the more stringent conditions imposed on banks to provide financing, in particular for development or acquisition loans.

The war in Ukraine has had significant effects, in particular the increase in the prices of raw materials, energy and food with the inflationary pressures that led to the raising of interest rates by the ECB. Additionally, the conflict in the Middle East enhanced the economic uncertainty caused by the Ukraine war, particularly with respect to the GDP growth of EU countries. This naturally impacted the loan market, leading to more stringent conditions and higher costs of financing (please refer to 1.1 The Regulatory Environment and Economic Background).

However, the peak of energy prices caused by the war has accelerated the deployment of renewables to decrease dependence on Russian fossil fuels. In fact, we are witnessing an intensification of the pre-war trend of investment in and consequent financing of renewables in the Portuguese market.

After a decrease in 2022, and according to published data, European high-yield issuance activity in 2023 increased by more than 50% when compared to 2022 (both in terms of deals and the proceeds raised). This growth trend is becoming even more marked in 2024.

In Portugal, and according to data of the central bank on the issuance of debt securities by Portuguese non-financial companies (which covers debt securities in general and not only high yield), the issuance of debt securities in 2023 exceeded the redemptions of debt by EUR3,000 million euros (a threefold increase when compared to 2022).

In 2023, the high-yield market has been marked by an increasing refinancing trend, which is continuing in 2024.

Alternative credit providers have not seen significant growth because credit activity is a regulated activity in Portugal. This substantially limits the activity of alternative credit providers, such as funds, which can only grant loans in specific situations (eg, loans granted by a certain type of investment fund – ie, venture capital funds – to SMEs).

Since 2019, loan funds have been recognised in the Portuguese jurisdiction. Loan funds are considered alternative investment funds (AIFs) and are exempt from the banking monopoly rules, thereby allowing them to perform direct lending. They can grant loans (loan origination), as well as participate in loans acquired from the credit’s originator or from third parties (loan participation).

Nevertheless, there has also been an increase in direct lending through the use of alternative funding schemes, such as the issuance of bonds.

The limitations detailed in 2. Authorisation strongly limit the evolution of banking and finance techniques.

A good alternative method to raise financing is through the issuance and subscription of bonds integrated in a Portuguese clearing system, given that this activity is not qualified as a credit activity. This structure also presents certain tax advantages.

There has been some development and growth of financing through crowdfunding, new digital platforms and loan funds with new specific legislation.

In 2022, participative loans were introduced in Portugal by Decree Law No 11/2022. These are financing arrangements in the form of loans or debt securities, and the respective remuneration can be indexed, exclusively or partially, to a share in the borrower’s profits and, in certain cases, may be converted into shares. Notwithstanding its innovative nature, the entities that can grant participative loans (even if in the form of debt securities) are essentially those that are already qualified to grant credit, so the new regime has limited impact on the diversification of financing.

In recent years, the ESG and sustainability-linked lending market has grown significantly and has become one of the most active markets. There were a number of ESG-linked loans and green bond issuances by different market players, such as utilities, power grid operators, telecom operators and food retailers.

Legislatively, trends have mainly been driven by the European Commission with the approval of Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”), as well as implementing and delegated acts. More recently, in 2023, a relevant piece of legislation for sustainable financing came into force: Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023, regulating European Green Bonds and optional disclosure of information relating to bonds marketed as environmentally sustainable and to bonds linked to sustainability. This Regulation (i) establishes uniform requirements for bond issuers using the designation “European Green Bond” or EuGB for their bonds that are made available to investors in the Union, (ii) creates a system to register and supervise external verifiers of European Green Bonds and (iii) provides for templates for optional disclosure of information in relation to bonds marketed as environmentally sustainable and sustainability-linked bonds in the Union.

As part of the national legislation, Portugal approved the Climate Basic Law (Law No 98/2021), which includes several provisions that relate to sustainable lending.

The granting of loans or other financing, which includes factoring, financial leasing and the granting of guarantees, on a professional basis, is a regulated activity. Non-banks are, in principle, not authorised to provide financing to a company incorporated in Portugal, unless they incorporate one of the relevant credit institutions or financial companies authorised by the regulator to do so.

EU-domiciled banks may benefit from the EU passport established in Capital Requirements Directive (CRD) IV and may be registered with the Bank of Portugal in order to carry out credit activities, allowing them to provide services on a cross-border basis without establishing any local presence in Portugal. This registration process is initiated by a notification made in the bank’s home country indicating the activities that the entity wants to carry out in Portugal, which is then sent by the entity to the Bank of Portugal for registration. Upon receiving such a notification, the credit institution or financial company may begin to provide its services in Portugal under the EU passport.

However, non-EU-domiciled entities are only allowed to carry out banking activities in Portugal by setting up a branch or establishing a subsidiary, which both require specific authorisation procedures with the Bank of Portugal.

The reverse solicitation principle, or passive marketing rule, is a generally accepted principle in the case of the provision of services by a non-EU-domiciled entity on the sole initiative of the client. According to the reverse solicitation principle, or passive marketing rule, if a Portuguese-domiciled client directly contacts the non-EU-domiciled entity and requests a specified banking service on its own and exclusive initiative, without any prior solicitation and marketing of such service by the entity, the aforementioned registration/authorisation with the Bank of Portugal should not be required.

If the credit operation is an isolated transaction, and there will be no further transactions in the future, it should not qualify as a professional credit activity according to the definition.

Please consider the restrictions mentioned in 2.1 Providing Financing to a Company.

The granting of security or guarantees is not restricted. However, there are certain corporate limitations that govern the granting of security or guarantees. In accordance with the Portuguese Companies Code (PCC), companies can only grant guarantees or security to third parties provided that they:

• have a justified corporate self-interest; or
• are in a control or group relationship with the beneficiary of the security or guarantees.

Furthermore, the PCC includes a prohibition on financial assistance (see 5.4 Restrictions on the Target).

For tax purposes, secured obligations are typically limited to an agreed maximum amount, which is usually linked to the value of the asset being encumbered or to the intrinsic value of the Portuguese target or subsidiary company.

There are no restrictions or controls regarding foreign currency exchange, and there is no limitation on the expatriation of dividends or investments abroad. However, certain financial transactions are subject to reporting obligations to the Bank of Portugal and to the standard anti-money laundering (AML) regulations.

Apart from those already mentioned, there are no restrictions on how a borrower may use the proceeds from a loan or debt security. However, it should be noted that it is market practice to stipulate contractually that the capital granted to a borrower may not be used for any other purpose than that specified in the facility agreement.

Portuguese law does not recognise the concepts of parallel debt and trusteeship. Therefore, the beneficiary of the security needs to have a valid underlying obligation duly secured by the security and, accordingly, the lenders would in principle need to be registered as holders of the security.

However, the security agreement and/or indenture, as well as the intercreditor agreement, usually state that the security should be granted to, and enforced by, the security agent in its capacity as agent (acting on behalf of the other secured creditors) and a joint and several creditor thus entitling it, as beneficiary of the security, to enforce the same. Consequently, it may be necessary to demonstrate that the security agent has been duly and expressly authorised for this purpose by each of the creditors.

Alternatively, the lenders may request to have the security registered in their own name to be able to enforce it directly.

Loans can be transferred through the assignment of credits or through the assignment of contractual positions.

Usually, parties prefer the assignment of credits mechanism, which, contrary to the assignment of contractual position, does not require the consent of the borrower. There can be limitations established for the assignment, including those related to tax (given that foreign lenders may be more expensive in terms of taxation if there is a gross-up obligation) and regulatory requirements.

The assignment is made by private contract between the assignor and the assignee, and it involves the transfer of the security package that is associated with it. If the security includes mortgages, a public deed or private document with signature recognition is required as a formality for the transfer. Depending on the type of security, further steps for the transfer may be required, including registration with the real estate registry office for mortgages, registration with the bank for bank account pledges or registration with the commercial registry for quota pledges.

A debt buy-back by the borrower is typically not allowed, as it may trigger a subordination of the debt in the case of insolvency. Alternatively, and as a way of overcoming this limitation, the borrower is usually entitled to repay the loan early, partially or in full.

There are no specific rules regarding “certain funds” similar to those contained in the City Code on Takeovers and Mergers.

An offeror in a public takeover bid is only required to have the funds deposited or to present a bank guarantee for payment when applying for the registration of the takeover bid with the Portuguese Securities Market Commission. There can be debt financing for the consideration of the offer, but such a financing must always be in the form of a bank guarantee or a deposit in favour of the target company’s shareholders. Thus, in such cases, there will need to be a direct commitment of the lenders towards those shareholders.

In addition, when public takeover bids are at stake, there is usually a financial intermediary (although this is no longer mandatory) that co-ordinates all financial arrangements with the offeror. In this context, certain fund provisions are not commonly used in public acquisition finance transactions.       

The major change in recent years having the most significant impact on legal documentation was Decree Law No 75/2017, which allows for appropriation in commercial pledges provided that there is an evaluation of the asset in accordance with the terms and criteria established in the pledge agreement. This allows for pledges that could not benefit from the financial collateral regime, but which qualify as commercial pledges, to be enforced through appropriation, provided that this is provided for in the security agreement.

Another recent trend is the insertion of ESG covenants in the legal documentation.

In addition to the criminal framework, the Portuguese Civil Code (CC) stipulates that any loan agreement with an annual interest rate higher than the legal interest rate (currently 4% and 11.25% for civil and commercial contracts, respectively), plus 3% or 5% (depending on whether or not there is an in rem guarantee), is considered a usurious agreement. Additionally, whenever the interest rate exceeds this threshold, it is reduced to that level.

The CC also establishes a generic prohibition against usury, whereby an agreement is void as a result of usury when someone, exploiting a situation of need, inexperience, dependency, compromised mental state or weakness of character of others, obtains the promise or granting of excessive or unjustified benefits.

Regarding consumer credit agreements, Decree Law No 133/2009 considers, among other circumstances, an agreement to be usurious whenever the overall effective annual rate (taxa anual de encargos efetiva global (TAEG)) at the time of the conclusion of the agreement:

• exceeds by 25% the average TAEG applied by credit institutions in the previous quarter for each type of credit agreement for consumer; or
• exceeds by 50% the average TAEG for consumer credit agreements entered into in the previous quarter.

Any interest rate above the legal thresholds is automatically reduced to half of the maximum limit, without prejudice to criminal or administrative liability.

Finally, it is worth noting that Decree Law No 58/2013 limits the default interest rate to be applied by credit institutions and entities licensed for credit activity to 3%.

There are no disclosure requirements for financial contracts, except in case of an offer of bonds to the public or in the context of a public takeover bid.

In accordance with Portuguese corporate income tax (CIT) rules, interest owed by Portuguese residents to non-resident entities is subject to a final withholding tax at the domestic rate of 25% over the interest gross amount.

The domestic withholding tax rate may, however, be reduced pursuant to the provisions of a double-taxation agreement concluded between Portugal and the country of residence of the lender, typically to 10% or 15%.

Notwithstanding, interest derived from loans granted by non-resident financial institutions to resident credit institutions is exempt from withholding tax to the extent that the interest is not allocated to a local permanent establishment of the non-resident creditor. This exemption is not applicable if:

• the recipient of the interest is resident in a “tax-blacklisted jurisdiction”; or
• the recipient of the interest, without a permanent establishment in Portugal, is held, directly or indirectly, in a greater than 25% shareholding by resident entities, except when the entity is resident in another EU country, in a European Economic Area (EEA) country bound by fiscal co-operation identical to the one established within the EU or in a country that has concluded a double tax treaty with Portugal providing for the exchange of information.

Non-residents may also benefit from an exemption from withholding tax on interest derived from listed bonds, as provided in Decree Law No 193/2005 (which also allows for an exemption from capital gains upon disposal of the bonds). See 4.2 Other Taxes, Duties, Charges or Tax Considerations regarding stamp duty on issues of bonds.

In summary, and to the extent that the necessary requirements regarding the beneficiaries (ie, bondholders) are met, no withholding tax applies over the interest provided the necessary formalities are completed, namely that proof of the beneficiaries’ non-residence status and information about the debt securities and beneficiaries are provided.

The bonds must be integrated in a centralised system managed by an entity resident for tax purposes in Portugal (ie, Interbolsa), an international clearing system managed by an entity located in another EU member state (such as Euroclear and Clearstream Luxembourg) or an EEA member state, provided it is bound by an administrative co-operation agreement for tax matters similar to the one established within the EU or integrated with other centralised systems. In this last case, the competent government member must authorise the application of the special tax regime.

The Court of Justice of the European Union ruled that the Portuguese domestic CIT rules imposing withholding tax over interest obtained by non-residents were in breach of EU Law. This is based on the fact that the withholding tax is based on the gross amount of the interest, whereas resident financial institutions (only) pay tax on their net income (decision of 13 July 2016, on Brisal – Auto Estradas do Litoral SA, KBC Finance Ireland v Fazenda Publica – Case C-18/15). While it was expected that this decision would determine tax rules, this has not been the case to date.

The reimbursement of the principal and other payments to the lender are not subject to Portuguese withholding tax.

Value-Added Tax (VAT)

Financial transactions are, as a rule, exempt from VAT under domestic VAT law. This exemption notably covers the granting and negotiation of credit, the respective administration and management by the entity granting the credit, the negotiation and granting of security and guarantees, and transactions (including negotiation) related to the deposit of funds, current accounts, payments, transfers, collection and cheques.

The VAT treatment of bank commissions and fees is determined on a case-by-case basis, depending on their particular features, although those commissions corresponding to the foregoing transactions are in principle VAT-exempt.

Conversely, other commissions or fees charged by the banks – eg, for consultancy, certain structuring and settlement services – are in principle out of the scope of the referred exemption and are hence liable to VAT taxation. Where these fees are charged by non-resident banks to Portuguese VAT taxpayers, Portuguese VAT will apply by means of the “reverse charge mechanism”.

Financial transactions subject to, but exempt from VAT, are subject to stamp duty.

Stamp Duty

Portuguese stamp duty is due on a list of specified taxable events when deemed to have occurred in Portugal, encompassing several transactions, contracts, acts and documents as outlined in the stamp duty chart, including financial transactions. However, no stamp duty is levied over transactions subject to and not exempt from VAT – eg, certain services provided by banks, as referred to in the foregoing.

The grant of credit is subject to stamp duty, levied over the principal at rates that vary depending on the term during which the credit is used, as follows:

• credit for less than one year – 0.04% per month or a fraction thereof;
• credit for one or more years – 0.5%; and
• credit for five or more years – 0.6%.

The extension of the term of the contract constitutes a new granting of credit, which raises additional taxation with stamp duty borne by the borrower. No stamp duty, however, applies in the case of funding obtained through the issue of bonds over the principal or interest (see the discussion of taxation of interest later in this section).

The granting of security is also subject to stamp duty whenever it is:

• granted in the Portuguese territory;
• for the benefit of a Portuguese-resident entity; or
• designed to produce legal effects, except if it is (i) materially related to a taxable stamp duty event and (ii) granted simultaneously with the latter.

Stamp duty is borne by the entity required to present the guarantee (ie, the debtor). Accordingly, security granted in the context of a loan agreement tends not to be subject to stamp duty, as the use of credit under the loan agreement will itself be subject to taxation – provided that the conditions mentioned in the first and second bullet in the foregoing list are met – such as in the case where a Portuguese company borrows funds from a non-resident bank. In the case of issuance of bonds, the security granted for the benefit of the relevant bondholders may trigger Portuguese stamp duty.

When due, the stamp duty taxable basis is the value of the underlying security (ie, the maximum secured amount). The effective tax rate depends on the applicable term, as follows:

• security with a term of less than one year – 0.04% per month or a fraction thereof;
• security with a term equal to one year and up to five years – 0.5%; and
• security with a term equal to or over five years or without any specific term – 0.6%.

In the case of transactions carried out by or with the intermediation of credit institutions, financing companies or other entities legally equated thereto, or any other financial institutions, interest is also subject to stamp duty over the respective amount at a rate of 4%, as well as commissions and other bank fees over the respective amount at a rate of 3% (commissions for guarantees) or 4% (other commissions and fees for financial services).

As outlined in the foregoing, no stamp duty is levied over operations subject to and not exempt from VAT – eg, those bank commissions subject to and not exempt from VAT.

Notwithstanding the foregoing, an exemption applies to interest and commissions charged, security granted and the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies. An exemption also applies to companies or entities the form and object of which correspond to those of credit institutions, financial companies and financial institutions – as provided in EU Law, and regardless of whether they are domiciled in EU member states or in other states – with the exception of jurisdictions with a more favourable tax regime as defined by Ordinance No 150/2004 of the Ministry of Finance (as amended).

Portuguese tax implications applicable to foreign lenders or non-money bank lenders should follow, in general terms, the regime described in 4.1 Withholding Tax and 4.2 Other Taxes, Duties, Charges or Tax Considerations.

In any case, the qualification (or not) of lenders as financial institutions should be taken into consideration, as the applicable tax regime may differ depending on such qualification. For instance, as detailed in 4.2 Other Taxes, Duties, Charges or Tax Considerations, commissions/other remuneration for financial services should only be subject to stamp duty if the relevant services are granted by – or with the intermediation of – credit institutions, financing companies or other entities legally equated to them, or any other financial institutions.

The typical Portuguese collateral package includes:

• mortgages over real estate properties in Portugal;
• pledges over the shares/quotas of material guarantors or financed companies;
• pledges over fixed movable assets (namely stock, equipment or inventory);
• pledges over bank accounts;
• pledges/assignments over intercompany receivables;
• pledges/assignments of receivables; and
• pledges/assignments over insurance policies and, in some cases, intellectual property rights (ie, patents, trade marks).

Security over real estate assets is less frequent, except for project finance or real estate transactions or where real estate is the key asset of the guarantor/financed company. In certain financing transactions (eg, vessel and aircraft financing), security is taken over the financed assets.

If the requirements are met, the lenders will use the financial collateral regime, such as financial pledges over bank accounts or shares.

Formalities

Formalities vary significantly according to the type of security.

In terms of documentation, mortgages over properties and banking pledges require a public deed or a document authenticated by a notary. Conversely, bank account pledges and share pledges require only a simple private document, except for commercial pledges with appropriation (which require a certification of signatures). In any case, public deeds or notarial authentication are usually recommended to serve as judicial enforcement titles.

In terms of possessory or similar actions, the creation of a pledge over movable assets requires the asset to be delivered to the creditor (unless the pledge at stake is a banking pledge). Assignments of receivables and pledges over credits must be notified to the respective debtors.

In most cases, taxation (stamp duty) is the most significant cost, while notarial costs are not significant.

Registration

The registration requirements also vary with the type of security at stake.

Pledges over bank accounts require a registration with the bank with which the account is held.

Pledges over shares are subject to registration with the issuer (in the shares’ registry book) and inscription of the pledge in the share certificates in the case of shares represented by certificates, or are subject to registration with the relevant depositary bank (in the case of deposited shares) or the relevant financial intermediary with which the shares are registered (in the case of dematerialised shares), regardless of whether they are integrated in a centralised clearing system.

Pledges over quotas are subject to registration with the commercial registry.

Mortgages over properties or registrable movable assets – such as aircraft, vessels or vehicles – are subject to registration with the competent registry office (real estate or other).

Registration costs are not material.

A floating charge or any other universal or similar security interest cannot be granted over all of a company’s present and future assets. Security is granted over specific assets, which need to be identified. Security over future assets can be granted to the extent that they are identifiable, although there are further limitations depending on the type of security. Some authors argue the admissibility, even if in a limited way, of floating charges.

In accordance with the PCC, downstream, upstream and cross-stream guarantees are allowed provided that certain requirements are met. However, a few scholars have argued that in cases where there is only a dominant influence (capable of originating a “de facto group”), upstream guarantees are not allowed due to the lack of legal protection of the controlled company.

As previously mentioned, Portuguese companies must have a justified corporate self-interest in granting guarantees or security to third parties or otherwise be in a group or control relationship with the beneficiaries (see 3.2 Restrictions on Foreign Lenders Receiving Security).

Usually, cross-stream guarantees cannot fulfil the requirement of the group or control relationship. As such, they need to meet the requirement of the justified corporate self-interest; otherwise, they will be null and void.

The PCC provides for a prohibition of financial assistance. The target company is prohibited from granting any type of guarantees or security, or any other types of funding in respect of any financing for the purposes of acquiring shares in the target company or in its direct or indirect parent company. This shall also include any guarantees or security for the refinancing of a previous debt incurred in the acquisition of shares of the target company or its parent company.

Breach of the financial assistance prohibition renders the respective guarantees, security, financing or funding made by the target company null and void. In addition, directors may incur civil and criminal liability. For this reason, it is common to include guarantee-limitation language in a guarantee or security agreement.

The parties usually agree, for tax reasons, to limit the maximum amount secured by the guarantees or security in order to limit the impact of stamp duty that is due in connection therewith (see 4.2 Other Taxes, Duties, Charges or Tax Considerations).

In the event that the assets of Portuguese companies are covered by legal immunities, namely public domain assets of the Portuguese Republic, or are allocated to any public service purposes, those companies can claim immunity from suit, attachment or other legal process in respect thereof.

Finally, any guarantee or security must guarantee or secure one or more obligations, to which they are ancillary, and such obligations shall be identified in the guarantee or security agreement. Accordingly, the guarantee/security will always follow the underlying secured obligation. As such, the invalidity of the underlying obligation would entail the invalidity of the guarantee/security, and termination of the underlying obligation would entail termination of the guarantee/security.

Guarantees and security are ancillary to the guaranteed or secured obligation; thus, the repayment, satisfaction or cancellation in full of such obligations automatically determines the release of the guarantees or security.

Nonetheless, it is market practice to execute a formal release agreement in order to obtain all necessary documentation from the lenders that allows perfection of the release of the security to the relevant authorities. This is particularly relevant if the security had been registered with a real estate or commercial registry office (mortgages and quota pledges) or with a bank (bank account pledges). Other actions, such as notices, return of share certificates and cancellation of registrations, may also be required, depending on the type of security that is being released.

The priority of competing security interests is determined by the date of registration of the security interest (registration priority principle) if the security is subject to registration – mortgages on properties, vessels and aircraft, factory and car mortgages, quota pledges, pledges over bank accounts and pledges over deposited and dematerialised shares are all examples of security interests that are subject to registration.

Conversely, if no registration is required but merely the transfer of possession (eg, assignment of receivables), priority is determined by the date on which the relevant perfection requirements of the security are completed, namely the act of possession by the creditor or similar (eg, notification to debtors in an assignment of receivables).

Contractual subordination is allowed under Portuguese law. Creditors may qualify their debt as subordinated and have it treated as such in an insolvency proceeding. However, contractual subordination is only recognised if it is made before all creditors (eg, deeply subordinated debt) and not just before certain creditors (eg, mezzanine debt), because insolvency law has general classes of creditors (see 7. Bankruptcy and Insolvency).

Therefore, waterfall provisions of intercreditor agreements are not recognised in insolvency proceedings, and distributions may have to be redirected amongst creditors after receiving the proceeds in an insolvency proceeding to comply with intercreditor agreements.

Under Portuguese law, structural or legal subordination resulting from law is also permitted.

The privilégios creditórios are statutory liens that allow for the respective creditor to be paid preferentially to other creditors. They result directly from the law and can be of two types.

• Real estate statutory liens:
1. generic (privilégios imobiliários gerais) – these encompass all the properties of the debtor in general, and they are established, for example, in favour of certain tax credits and certain social security credits; and
2. specific (privilégios imobiliários especiais) – these refer to a specific property, and they are foreseen to secure, for example, the credits of employees performing their work in the property or credits related to real estate transfer tax or real estate property tax.
• Moveable assets statutory liens:
1. generic (privilégios mobiliários gerais) – again, these encompass all moveable assets of the debtor and are established to secure certain tax credits and certain credits of the social security and the employees; and
2. specific (privilégios mobiliários especiais) – these refer to a specific moveable asset of the debtor, and they are foreseen to secure, for example, credits arising from judicial expenses.

The real estate special statutory liens rank senior to any mortgage even if the mortgage was granted prior to the creation of such statutory lien.

As a general rule, the general statutory liens and the moveable assets special statutory liens should not prevail over security already existing over the asset at the time of their creation, although there are some exceptions.

Retention rights over real estate assets (eg, constructor’s retention rights) used to rank senior to mortgages even if the latter were granted prior to the former. However, pursuant to a recent legislative change introduced by Decree Law No 48/2024 of 25 July 2024, which limits the situations in which real estate retention rights (created after 24 August 2024) prevail over previously registered mortgages, those rights can only be paid preferentially over the debtor’s other creditors, including the mortgage creditor, if the holder’s claim guarantees the reimbursement of expenses incurred to preserve or increase the value of the property. It is now only in this case that retention rights prevail over mortgages (even if the mortgage was registered previously).

Security interests are usually enforced by the secured parties directly (if lenders hold the security directly and retain the enforcement right), or by the security agent upon the occurrence of an enforcement event following an instruction of all or the majority of lenders.

Early termination clauses based exclusively on the declaration of insolvency are generally not allowed, but the Portuguese Insolvency Code expressly allows early termination in situations preceding the declaration of insolvency.

Enforcement procedures vary significantly depending on the type of security. The enforcement of mortgages is subject to a judicial enforcement proceeding, and no private or out-of-court enforcement is allowed.

The general rule is that appropriation by the creditor is not allowed; therefore, enforcement requires a court sale or an extrajudicial sale. However, the financial collateral arrangements regime and Decree Law No 75/2017 on commercial pledges allow for an appropriation of the asset in certain conditions.

Finally, assignment of receivables only requires a notification to the debtor/client of the borrower or guarantor to make payments directly to the secured parties.

Borrowers or guarantors usually grant irrevocable powers of attorney in favour of the security agent to create additional security over the new assets, or to enforce security and sell the assets upon the occurrence of an event of default.

The choice of a foreign law is valid, recognised and enforceable under Portuguese law, unless there is a mandatory provision that determines the applicability of Portuguese law, in accordance with Regulation (EC) No 593/2008 on the law applicable to contractual obligations (“Rome I”).

The submission to a foreign jurisdiction is also valid, recognised and enforceable under Portuguese law, provided that the exclusive jurisdiction provisions set forth in Council Regulation (EC) No 1215/2012 are complied with.

A waiver of immunity is also recognised, except where, as previously mentioned, the assets are in the public domain (bens do domínio público), allocated to public interests or owned by states and diplomatic entities.

Judgments rendered by EU member state courts are enforceable in Portugal in accordance with the terms of Regulation 1215/2012.

Judgments rendered by foreign courts outside the EU, should there be no bilateral treaty, will also be recognised and enforced in Portugal according to the procedures set out in the Portuguese Civil Procedure Code on the recognition of foreign judgments, provided certain requirements are met.

In respect of foreign arbitral awards, the enforcement scenarios may vary depending on the concrete situation and whether or not they are covered by the New York Convention or by any bilateral agreement.

Aside from the foregoing, there are generally no other matters that might impact a foreign lender’s ability to enforce its rights under a loan or security agreement. However, all documents, including any enforcement titles, have to be translated into Portuguese.

The declaration of insolvency triggers, in principle, the automatic acceleration of the liabilities of the insolvent entity. As such, there will be, in principle, an automatic acceleration of the loan.

In respect of guarantees, the declaration of insolvency gives rise to the automatic claw-back actions of:

• granting of security ancillary to pre-existing obligations, or others that replace them, within six months prior to the beginning of the insolvency proceeding;
• personal guarantees, sub-guarantees, sureties and credit mandates made within six months prior to the beginning of the insolvency proceeding and not corresponding to transactions with a real benefit for the insolvent entity; and
• granting of security simultaneously to the creation of the secured obligations within 60 days prior to the beginning of the insolvency proceeding.

These automatic claw-back actions do not apply to financial collateral arrangements, such as financial pledges. In addition to such automatic claw-back actions, the acts performed or omitted within the two years prior to the insolvency proceedings may generally be subject to claw-back if they are found to be detrimental to the insolvency and have been carried out in bad faith.

Additionally, enforcement of guarantees and security is carried out within the insolvency proceeding of the guarantor, except for, for example, financial collateral arrangements. Therefore, all future enforcement proceedings will no longer be allowed, those currently pending will be suspended and creditors will need to lodge their claims in the insolvency proceeding.

The Portuguese Insolvency Code provides for the following classes and ranking of credits:

• guaranteed credits – credits secured by security, including special statutory liens; accordingly, these include real estate special statutory liens (eg, state credits related to real estate property tax), third-party security rights (eg, mortgage, income assignment, pledge), and movable assets special statutory liens (eg, credits resulting from judicial costs);
• privileged credits – credits secured by general statutory liens over assets integrated in the insolvent estate up to the amount corresponding to the value of the assets that are the object of the guarantee or the general statutory liens; these include movable assets general statutory liens (eg, employment credits), and real estate general statutory liens;
• common credits – all credits not included in another class; and
• subordinated credits – namely interests and credits held by persons with special relations to the debtor (eg, controlling shareholder, directors).

The payment will be performed according to the credit ranking: guaranteed credits, followed by privileged credits, then common credits and finally subordinated credits.

If the assets of the insolvent estate are insufficient to pay all creditors in full, the payment to common creditors will be made by apportionment amongst all creditors and in proportion to their credits.

The payment of subordinated credits will only take place after full payment of common credits.

The duration of insolvency proceedings varies a lot (eg, depending on the court at stake, the complexity of the insolvency, the creditors and the claims/oppositions). As a reference, the insolvency proceedings completed in the first quarter of 2024 had an average length of 65 months.

Recoveries would highly depend on the security and position of the relevant creditor, the assets and liabilities of the insolvent company and the type and number of creditors. As a reference, the credit recovery rate of the proceedings completed in the first quarter of 2024 was 6.5%.

There are two main recovery procedures outside an insolvency proceeding: the “Out-of-court Recovery Proceeding” (RERE) and the “Special Revitalisation Proceeding” (PER).

The RERE is an extrajudicial voluntary mechanism aimed at allowing the recovery of companies in financial difficulties or imminent insolvency through negotiations with creditors for its revitalisation. The company and creditors, representing at least 15% of the company’s liabilities (non-subordinated), must sign a negotiation protocol and deposit it with the commercial registry. The agreement reached will have some similarities to the agreement in a PER, although the RERE (contrary to the PER) does not provide for cramming-down of the non-participant creditors.

The PER aims to allow debtors in financial difficulties or imminent insolvency, but whose recovery is still feasible, to negotiate with creditors an agreement for the revitalisation of the company that, if approved by the creditors and homologated by the court, will bind all creditors.

A PER is deemed approved in the following situations.

• If creditors are classified into different categories, it is voted for in each of the categories by more than two-thirds of all votes cast, thus obtaining:
1. the favourable vote of all categories;
2. the favourable vote of the majority of the established categories, provided that one of the categories is composed of secured creditors;
3. in the event there are no secured creditors categories, the favourable vote of the majority of the established categories, provided that at least one of the categories is composed of non-subordinated creditors; and
4. in the event there is a tie, the favourable vote of, at least, a non-subordinated category.
• In the remaining cases, when it is voted by creditors whose credits represent at least one-third of the total number of claims with voting rights, if the plan obtains:
1. the favourable vote of more than two-thirds of the votes cast; and
2. the favourable vote of more than 50% of the votes cast pertaining to non-subordinated credits with voting rights.
• When the recovery plan receives:
1. the favourable vote of creditors whose claims represent more than 50% of all claims with voting rights; and
2. the favourable vote of more than 50% of the votes issued pertaining to non-subordinated credits carrying voting rights, as listed in the provisory credits list.

Finally, the Legal Framework for Conversion of Debt into Equity allows companies in a negative equity position to restructure their balance sheet and strengthen equity via the conversion of debt.

If a borrower, security provider or guarantor is declared insolvent, the most relevant risk for lenders is the possible claw-back of the agreements entered into between the lenders and the insolvent entity, namely for the granting of guarantees or security, under the terms detailed in 7.1 Impact of Insolvency Processes.

Furthermore, and in addition to the recoverability risks (which are assessed on a case-by-case basis considering the assets and liabilities of the debtor, the security benefiting the lenders and the range of creditors), lenders will also face a recovery timing issue: unless they benefit from financial collateral, security and guarantees have to be enforced within the insolvency procedure, which, as mentioned in 7.3 Length of Insolvency Process and Recoveries, may take a long time.

After a decade of lower project finance activity in Portugal (including due to restrictions on public investment following the sovereign debt crisis), there has been an increase in activity in recent years, especially in the renewable energies sector (in line with the promotion of energy transition), and more recently with the new hospital project developed by the consortium selected under a public-private partnership (PPP) and financed by a combined financing arrangement involving a bank syndicate and the European Investment Bank (EIB).

The National Investment Plan 2030, which defines the structural investment priorities for this decade, and the Recovery and Resilience Plan presented by the Portuguese government within the framework of the EU Recovery and Resilience Mechanism, also create a new incentive for public investments and PPPs, as well as new opportunities for project financing – namely of rail and airport infrastructure. In this context, sectors associated with innovation, greener production and digital tools and skills are the major beneficiaries of the expected public investment and, as such, should be more active. Nevertheless, the recovery plan also envisages relevant investment projects in health, social housing and infrastructure.

In parallel, the project finance sector in Portugal has also witnessed several refinancing transactions for existing project debt in recent years, which do not follow the standard project finance approach.

The PPP legal framework is based on the Portuguese Public Contracts Code (PPCC) and the PPP laws.

Portuguese PPPs typically follow project finance structures with a build-operate-transfer (BOT) model. The concession agreement regulates the major contractual issues of the PPP, namely the terms on which the project company will construct the project and operate it as well as the payment terms associated with the PPP. In addition to the concession agreement, the remaining documents that comprise the PPP package are also attached: the equity subscription agreement, the shareholder agreement, the direct agreement, the construction contract, the operation contract and the financial documents.

Before launching and awarding the PPP, environmental impact declaration and urban planning licences need to be issued. An environmental licence may also be required for certain industrial projects.

Under PPP laws, the risks of the project shall be clearly contractually identified, and its allocation shall be made in accordance with each partner’s ability to manage it. Nonetheless, the partnership must also involve a significant and effective transfer of risk to the private partner, particularly financing risk.

Financial rebalancing, as the main mechanism covering project risks, remains with the public contracting entity.

Following the execution of the PPP contract, and prior to its entry into force, the Court of Auditors will review the agreement. The acts, contracts and other instruments subject to the previous auditing by the Court of Auditors may produce findings prior to the visa, except in respect to payments resulting from such acts, contracts or instruments being audited.

Portuguese law is mandatorily applicable to concession agreements and other project documents related thereto entered into with public entities. With respect to agreements entered into with private entities, parties are free to choose the governing law, pursuant to the Rome I regulation. Portuguese courts will uphold the applicability of the law specified as governing such agreements, unless such applicability would be illegal or would contravene Portuguese public policy principles, or unless it relates to foreclosure procedures occurring in Portugal (in which case Portuguese law shall apply).

International arbitration may be used to settle disputes, although, in the case of concession agreements and other project documents related thereto entered into with public entities, the submission to international arbitration may be subject to certain requirements.

Except for public domain assets, which are not capable of being appropriated by private entities, the ownership of real property (or the exercise of remedial rights on liens on such property) does not require a permit, licence or administrative consent, apart from those required by normal urban planning regulations.

Concerning water resources, their use, regardless of foreign ownership, is subject to a licence, an authorisation or a concession (depending on certain requisites, namely the volume used). They are usually attributed through a public tender and subject, in some cases, to prior environmental assessments and other town planning regulations, which sometimes disallow specific uses in protected areas or zones with special scarcity. The transmission of a public domain water resource title is also subject to an authorisation (including in change of control situations), and the transmission of a private domain water resource title is subject to a prior communication, with both being subject to certain conditions.

The works and buildings placed on the hydric domain cannot be transmitted, directly or indirectly, nor can they be encumbered or mortgaged, without an authorisation from the competent authority for the water resources title.

Restrictions arising from Regulation (EU) 2019/452 and Decree Law No 138/2014 mentioned in 8.7 Natural Resources should also be taken into account.

Project finance structures in Portugal are similar to those used internationally. A special-purpose vehicle (SPV) is usually incorporated as a share company. The financing structure is usually a loan, although bond structures are also used when international financing is involved or there is participation by funds that, for regulatory reasons, cannot grant loans. Monoline structures are less common but they were successfully used in the past. The loan structures can have different types of facilities for working capital, letters of credit or banking guarantees, liquidity, VAT or long-term loans, and they can be granted by one or two banks or can be club deals, depending on the size of the financing. In certain projects, there can also be a credit agreement with the EIB.

There is typically a full security package, however, which limits the recourse to the project, project assets and project documents (such as the construction and operation contract). Apart from the pledge of shares of the SPV, the security package is not available to shareholders of the project company, which usually have their liability limited to certain amounts in relation to their respective participation in the share capital of the project company.

The laws that are relevant depend on the project at stake. In the energy sector, the energy legal framework is of utmost importance, and the lenders usually try, for example, to obtain certain protections regarding the reduction of feed-in tariffs. In the transportation and infrastructure sector, the concession agreement is usually the main legal document to consider.

There are no relevant limitations on foreign investment, except in energy and certain other sectors.

Export credit agency financing is not that common in Portugal, although it has increased in the last few years. It is common to have financing coming from both commercial banks and the EIB, which requires the structure to be properly modelled to ensure a higher ranking for EIB debt and, usually, guarantees from the commercial banks of the bank financing. The use of project bonds is not common but they have been used successfully in certain project finance deals. In the past, monoline structures were commonly used, particularly in railway and subway financing contracts, but nowadays they are much less prevalent.

In recent years, particularly due to the banking crisis, investment funds have become active in this sector using alternative funding structures, as is the case for bond issuances.

The ownership of hidden mineral resources is vested in the state. Any entity that is interested in searching for or exploiting such resources needs to obtain an adequate licensing or concession title. The type of title that is required can vary depending on the type of resource sought, and also on the type of activity. Usually, mere exploration requires a simple licence, while exploitation will necessarily imply a concession. Mining rights can be acquired by direct negotiations with the licensing authority. However, in the case of oil and gas rights, there has been an indication that future rights will only be awarded as part of a competitive bidding process.

The exploration and exploitation operations require prior adequate environmental assessment, subject to public discussion. Any protective or remedial actions that are identified as necessary are exclusively the responsibility of the licensee. Also, environmental rules on the protection of landscape are mandatory and must be implemented, including after the operation. For oil and gas operations, an investment plan is needed.

The licensee is entitled to take and dispose of the production resulting from their activity, except for any quantities that may be due to the state as royalties that the state decides to take in kind. Exports are not subject to any specific duty or tax and are free, except as may otherwise be regulated by sanctions adopted by the UN or the EU, or by another competent international organisation. Exports in mineral resources can only take place when arising from an authorised operation or if they were legally imported.

One should consider the restrictions that may arise under Regulation (EU) 2019/452 (the “FDI Screening Regulation”), as well as under Decree Law No 138/2014, which establishes a safeguard regime regarding key strategic assets to ensure the security of national defence and safety and the provision of fundamental services in the national interest in the areas of energy, transport and communications, and sets out specific restrictions on foreign investment by overseas entities (from outside the EU and the EEA). Such restrictions are considered on a case-by-case basis through the verification of certain criteria, following which the Portuguese Council of Ministers may oppose the completion of the relevant transaction over such key strategic assets.

Projects may be subject to environmental impact assessment, environmental incidence assessment and, sometimes, environmental licensing.

The main environmental legislation applying to projects is the following:

• Law No 19/2014, which enacts the Environmental Bases Policy;
• Decree Law No 151-B/2013, which sets forth the legal regime for the environmental impact assessment; and
• Decree Law No 127/2013, which, together with Decree Law No 75/2015, regulates administrative proceedings related to the granting of pollution and emissions licences for several activities.

The regulatory body that oversees environmental law is the Portuguese Environment Agency, which is an independent administrative entity supervised by the Environment Ministry.

Decree Law No 273/2003 established the prerequisites regarding health and safety in projects that entail construction. It requires the use of a health and safety plan as well as the appointment of a safety co-ordinator, both during the drafting of the project and later during its execution. The Authority for Work Conditions is responsible for the control of the aforementioned requirements.

To obtain and maintain a permit to perform public or private works, insurance for work accidents is required, the existence of which is supervised by IMPIC (Instituto dos Mercados Públicos, do Imobiliário e da Construção). In turnkey or concession contracts, additional rules regarding health and safety can be included.