Project Finance 2023 Comparisons

In Portugal, the majority of infrastructure projects are sponsored at inception by domestic and international (mainly European) construction companies, infrastructure operators/services providers, private equity funds and domestic banks.

The majority of the institutions acting as lenders in the Portuguese project finance market are Portuguese and international commercial banks and specialised investment funds, as well as the European Investment Bank.

In recent years, infrastructure investment funds and international institutional investors (predominantly based in Europe, Asia and the USA) have become more active in the Portuguese project finance ecosystem, particularly in the context of:

• M&A transactions regarding some projects whose construction stage is completed and operating smoothly, with sponsors selling their stakes in project companies that own fully operational facilities;
• refinancing transactions, mainly entailing the replacement of commercial lending facilities by the issuance of project bonds integrated in a Portuguese clearing system; and
• a shift of the original lenders’ positions, with banks reducing their exposure to these projects and investment funds taking over ongoing projects, especially if they are non-performing.

In Portugal, public-private partnership (PPP) transactions are typically put in place for the construction and operation of capital-intensive public infrastructure projects involving highly leveraged investments in regulated areas, including:

• infrastructure and transportation, such as motorways, tunnels, bridges, railways, ports and airports;
• health, such as hospitals;
• water distribution and sanitation at the local level.

From a historical perspective, the PPP model was first adopted in Portugal to leverage the construction and operation of the bridges over Tagus river in Lisbon, as well as the expansion of the National Road Network, particularly the National Highway Network in the 1990s and early 2000s.

After a first experience in the mid-1990s, public tenders for the first generation of PPPs in the health sector entailing the construction and maintenance of infrastructure, as well as the clinical services provision to patients, were launched between 2003 and 2007. In 2022, the new Lisbon Hospital (Hospital Lisboa Oriental) was awarded on an infrastructural basis (ie, not including clinical services or other complementary activities), and the tender for the Algarve central hospital is expected to be launched in 2024.

The road sector continues to stand out, not only because of the weight it has in terms of the number of PPPs (more than 50% of the total number of PPPs), but also due to the level of net payments which, in 2021, accounted for 83% of the overall net costs of PPPs in the State budget.

First of all, PPPs are governed by Decree-Law 111/2012, of 23 May, as amended, which sets out the rules applicable to the structuring, launching, tendering, renegotiation, amendment and supervision of PPPs, without prejudice to the Public Procurement Code rules on the execution of public contracts, as applicable. In addition, each sector is regulated by specific legal frameworks and has its own regulatory authority with supervisory and regulatory powers.

Considering these provisions, the instruments governing the relationship between the public and private parties are mainly the agreements of concession/sub-concession of public works or services awarded pursuant to public tender procedures (currently ruled by the Public Procurement Code).

Private Finance Initiatives

Certain private initiatives are structured as project finance transactions, such as university campuses and projects in the renewable energy sector. There is no specific legislation governing these private initiatives.

When structuring a project finance deal, the critical factors for the success of the project include:

• comprehensive knowledge of the legislative and regulatory framework applicable to the project;
• sponsors that have know-how and experience in the sector concerned, and that have the ability and capacity to provide the technical support and equity funding required by the project;
• the correct allocation of the project risks by the intervening parties, as well as the adequate transposition of the risk matrix into the contractual instruments; and
• extensive due diligence over several components of the project (financial, technical, legal, insurance, etc).

In the context of the due diligence exercise prior to the financing arrangements being entered into, and considering that these are ring-fenced projects, normally developed by (and directly financed to) a special purpose vehicle (ie, the project company), the risk analysis focuses on the project and in particular on its ability to generate the cash flow required to service the debt and, from the sponsors' perspective, to obtain a return on investment.

Medium or long-term financing is the main source of funding for the project, to which own funds are also allocated in the form of capital, ancillary capital contributions or shareholder loans; it is also common for there to be additional sponsor commitments to cover cost over-runs and other specific risks associated with the project.

Public subsidies or support may also be allocated to large public projects, mainly in the transport sector.

The debt to equity ratio is defined on a case-by-case basis after a comprehensive risk analysis has been carried out by the lenders. Ratios of 70%–90% debt to 30%-10% equity have typically been adopted in the past, with reference to the total funds needed to structure the project.

Apart from the opportunities that are being created under the Recovery and Resilience Plan, some of which are being structured under a project finance model, the following projects are expected to be particularly significant in the coming years.

High-Speed Railway

The Portuguese government has announced that it is launching a high-speed railway line linking Porto with Lisbon. The first phase of this project is scheduled to be completed by 2028; it involves the construction of the stretch between Porto and Soure, and of a new railway crossing over the River Douro between Porto and Vila Nova de Gaia. It is expected to comprise the launching of two concessions for the design, building, financing and maintenance (DBFM) of the stretches between Porto and Aveiro and between Aveiro and Soure, respectively.

The second section, between Soure and Carregado, is expected to be completed by 2030, within a new concession. The third and final phase, between Carregado and Lisbon, is to be constructed later, but the timing and the contracting model have not yet been announced.

Airports

The design, building, operating and maintenance of a new or secondary airport in the Lisbon area is also a highly anticipated infrastructure project, due to the urgent need to increase airport capacity in the region, which has already exceeded demand estimates and indicators.

The independent technical committee appointed by the Portuguese government to carry out the strategic environmental assessment of the future Lisbon airport is expected to provide its final report by the end of 2023, with a proposal for the best technical solution for this important infrastructure. The final decision is expected in 2024.

Ports

The ports sector should also attract the attention of investors in the next couple of years, with a new legal framework expected to be put in place very soon, allowing for significantly longer contracts capable of accommodating larger investments. This may trigger the renegotiation of existing projects, but may also bring some new projects into the pipeline, including a multipurpose port terminal in Leixões, with an estimated investment of over EUR200 million, which has been highly anticipated.

COVID-19 Pandemic-Related Financial Rebalance Claims

Renegotiations of the existing PPPs and arbitration proceedings are expected to follow requests for financial rebalancing, which are being submitted by concessionaires in various sectors on the grounds of the COVID-19 pandemic and the curfew and lockdown measures adopted.

Although other types of security and collateral may be given under Portuguese law to secure loans, project finance deals in Portugal typically include the following security package.

• Security provided by the project company:
1. pledge of bank account balances;
2. mortgages on the project's real estate (provided it is not subject to the public domain);
3. pledge of certain movable assets and rights (including credits); and
4. assignment of receivables by way of security, such as receivables due by the grantor, the constructor and the operator entities resulting from their respective project contracts, and receivables arising from insurance claims, entailing a mandate relationship between the lenders and the project company, so that the latter continues to receive those payments unless an enforcement event occurs.
• Security provided by the sponsors:

1. pledge on the project company’s shares or “quotas” if the borrower is a limited company by “quotas”, which is less usual;
2. assignment of receivables by way of security (mainly receivables due from the project company in connection with the investment made by the sponsors).

The security agreement is the framework agreement concerning the granting of the security interest. This agreement is executed between the borrower and its shareholders (as security providers) and the finance parties, and typically sets out the type of security interest (to be) created to the benefit of the finance parties, the creation formalities (if any), the perfection steps and the enforcement rights, among other general clauses.

The financial collateral legal framework set out in Decree-Law 105/2004, of 8 May, as amended, is usually adopted in this type of PPP project financing arrangement.

Formalities and Perfection Requirements

The creation formalities depend on the type of security involved.

• A mortgage is created by a notarial deed or a private document with a term of authentication of the notary and registered with the Portuguese real estate registry department.
• A pledge of credits, including shareholder credits, and receivables is typically made by written private agreement and requires notification to the debtor mentioning that the relevant right was pledged.

When the pledged shares have a physical representation, the share certificates will be in the security agent’s possession.

Stamp duty is generally levied on the creation of these types of security (see 8. Tax).

The Security Agent

The legal concept of a “security agent” does not exist under Portuguese law. However, the role of the security agent is recognised in Portuguese practice and is used in syndicated financing deals in particular.

Security interests are created in favour (and to the benefit) of the project lenders and of the agents and the counterparties in project-related hedging agreements. Several security documents of less recent deals provide that the relevant security interests are granted in favour of the security agent, acting on behalf of all secured creditors. In this case, the security is held by the security agent on behalf of the remaining secured finance parties.

In either case, the security agent is normally the sole entity allowed, in most circumstances, to enforce the security, acting in accordance with the instructions of the secured finance parties, pursuant to the decision-making rules set out in the financing agreements. To this end, the security agent is appointed by the remaining secured parties to act as their agent under and in connection with the finance documents (in particular the security agreement), and is authorised and empowered to exercise, in their name and on their behalf, the rights, powers, authorities and discretions in connection with the security interests.

Other Contractual Arrangements

On a different level, several forms of credit enhancement are usually included in the project’s contractual arrangements, to support the risk allocation and improve the lenders’ major interest, which is to have the borrowed capital and interest fully and timely (re)paid by the borrower. These are not forms of security, but rather contractual mechanisms of a different nature embodied in the several project agreements.

The following are examples typically found in Portuguese project finance deals.

• Back-to-back provisions in the construction/operation agreements, in order to overcome certain risks to the constructor/operator entities.
• “If and when” (and how much) compensation arrangements under construction/operation project contracts, mirroring the rights the project companies are effectively given by the grantor.
• Step-in rights under the direct agreements – lenders are entitled to replace the project company (borrower) in the key project agreements if the latter is in default, precisely with a view to remedying the default and avoiding early termination of the contracts by the counterparty.

• Call option - in order to enable the step-in right, the shareholders of the project company normally grant a call option right in favour of the project lenders, which can be exercised in case of default of the financing agreements and/or acceleration of the debt. This mechanism was especially relevant when no financial collateral and appropriation of the project company’s shares were allowed in the Portuguese legal system.
• Irrevocable powers of attorney – both the project company and its shareholders (ie, the sponsors) usually grant an irrevocable power of attorney to the security agent, with powers to carry out the acts necessary for the perfection of the security created or promised to be created in the security agreement, as well as the enforcement thereof. One of the most typical powers is to approve resolutions on behalf of the project company’s shareholders, including on the replacement of directors of the project company.
• Reserved discretions and other undertakings inserted in the financing agreements, giving the lenders the power to determine or condition the most relevant actions of the company under the key project agreements.

Portuguese law typically requires the encumbered assets to be determined (although security over future assets and credits may be permitted in specific situations).

A floating charge is not permitted under Portuguese law. There is, however, one exception to this principle, which allows for pledges similar to floating charges, applying to money and securities deposited on bank accounts if the pledge is granted as financial collateral.

As noted in 2.1 Assets Available as Collateral to Lenders, certain security interests, such as mortgages and pledges over “quotas”, are subject to registration with the relevant public registration office either to ensure their validity or to ensure proper public knowledge of the encumbrances created.

In addition to the costs associated with the intervention of the notary if a public deed or an authentication of a document is required, the registry office will also charge fees for the registration of the mortgage or pledge of quotas. The amount of these fees will depend on the number of underlying assets being considered for registration purposes, but they are typically not significant in view of the amounts involved in a PPP transaction.

Typically, the secured assets should be identified in order for a security interest to be validly granted over them. Generally, security interests are granted through a security agreement, which contains the main provisions applying to all the relevant security interests, whether they are pledges of shares, pledges of credits, assignment of receivables as security, or even promissory security interests.

There may be some exceptions to this rule, especially in situations where a notary’s intervention is required, such as mortgage deeds or pledges of credits that will be converted into pledges of movable assets under a 1939 Decree. In these situations, either a separate document is entered into, especially regarding mortgages, or the actual security agreement is authenticated by the notary.

Generally speaking, there are no restrictions in connection with the granting of security or guarantees, but certain limitations apply to certain types of security providers or collateral.

Corporate Law Restrictions

Under the Portuguese Companies Code (PCC), the granting of security or guarantees by a company to secure third parties’ debts or obligations is allowed in cases where the company has a justified self-interest or is in a group or control relationship with the guaranteed company.

Pursuant to the financial assistance rules set out in the PCC, a Portuguese company cannot, as a principle, grant security or guarantees to secure the obligations of any third party arising from the financing raised for the acquisition of shares representing the guarantor’s share capital.

Other Limitations

In certain PPP agreements, the project company is not allowed to create security over certain project assets, either real estate or movable assets; an encumbrance over the project company’s shares may require the grantor’s prior consent, other than in the benefit of the project lenders, which is typically authorised at inception. Such limitations are normally reflected in the agreements and are justified by the nature of the assets (eg, real estate subject to the public domain or any assets of the private domain of the grantor or to be transferred to the grantor upon termination), or they are intended to preserve the public interest inherent to the project, such as prohibition of creating security and other liens over equipment used in the operation of the project.

In Portugal there is no central register of existing liens on collateral. However, security over real estate, movable assets subject to public registration (such as motor vehicles, ships and aircraft) and “quotas” (ie, shareholdings representing the share capital of private company “by quotas”) is subject to public registration with the appropriate registry offices, which may be requested to issue excerpts attesting the encumbrances over such assets.

Pledges over shares are also subject to registration, which is not publicly available.

For non-registered assets, the lenders’ due diligence exercise is more difficult, and the comfort sought by them is ultimately obtained through representations and warranties given by the security provider and negative pledge undertakings.

The satisfaction of all the secured obligations, notably through the full repayment of any and all amounts due under the financing arrangements, automatically triggers the release of the security or guarantees granted in connection with them.

This being said, for the sake of legal certainty, it is highly recommended as well as common practice to execute a written release agreement, which will be submitted, if applicable, to the public registry offices to perfect the cancellation of the security over the real estate or movable asset subject to registration.

In addition, other ancillary actions are usually carried out in the context of the release of security and guarantees, such as notices to the debtors of the credits and receivables pledged or assigned by way of security, the return of share certificates and the revocation of irrevocable powers of attorney granted to the security agent.

The circumstances under which the collateral may be enforced are normally set out in the security agreement. Typically, security is enforced by the security agent on behalf of the secured creditors upon the occurrence of an event of default/acceleration of the debt, and following an instruction from the secured creditors approved pursuant to the decision-making rules set out in the financing agreements.

Enforcement formalities and procedures depend on the type of security involved:

• pledges are enforced through a court sale, but private (out-of-court) sales are also permitted;
• the enforcement of mortgages is carried out through a judicial enforcement action; and
• the enforcement of the assignment of receivables is made by notifying the debtor entity to make payments directly to the secured parties/security agent.

In general, appropriation of the secured assets by the creditor is not allowed, but it is admissible in the following cases.

• The financial collateral legal framework permits the appropriation, provided that this right and the asset evaluation rules are reflected in the pledge documentation and the beneficiary of the security returns the balance between the value of the asset/right pledged and the amount of the secured obligations to the security provider.
• Decree-Law 75/2017 of 26 June on commercial pledges allows appropriation in the context of a pledge securing a commercial obligation when the security provider is a commercial entity and there is no other pledge ranking with priority over the same collateral, provided that the appropriation is expressly agreed in writing and is made at the value resulting from a valuation carried out after the maturity of the obligation, with the method and criteria of valuation being laid down in the agreement, and the beneficiary of the security returns the balance between the value of the asset/right pledged and the amount of the secured obligation to the security provider.

In the context of certain PPPs, the enforcement of the pledge over the project company’s shares may require the prior consent of the grantor under the relevant project agreements, particularly when the enforcement triggers the change of control of the project company.

The choice of a foreign governing law will be recognised and given effect by the courts of Portugal in the following circumstances:

• where the choice relates to contractual obligations, in accordance with and subject to the provisions of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008, on the law applicable to contractual obligations (Rome I); and
• if and to the extent the choice relates to non-contractual obligations, in accordance with and subject to the provisions of Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II).

If the contract involves non-EU parties, the choice of foreign law will still be upheld, provided that it can be established that the choice of that law corresponds to a serious interest of the parties or that there is a relevant connection between that law and the contract. Notwithstanding, the mandatory provisions of Portuguese law will continue to apply.

However, Portuguese PPP agreements involving public entities, such as (sub)concession agreements, are required to be governed by Portuguese law. Portuguese law should also govern other key project contracts, such as the construction and operation agreements (see 9. Applicable Law).

Finance documents involving international lenders are governed by either Portuguese or English law, with the exception of the security documents, which are subject to Portuguese law.

Final judgments obtained in the courts of any EU member state will be recognised and enforced by the Portuguese courts in accordance with, and subject to, the provisions of Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, within the limits established in such Regulation.

Final judgments obtained in foreign courts outside the EU will also be recognised and enforced by the Portuguese courts without rehearing the case, according to the procedures set out in the Portuguese Civil Procedure Code on the recognition of foreign judgments (notwithstanding the applicability of bilateral treaties, if any). The obstacles to recognition are similar to the ones listed in the EU Regulation mentioned above.

Portugal is a party to the 1958 New York Convention and consequently arbitration awards will be recognised and enforced in Portugal without rehearing the merits of the case. If the award was rendered in a country that is not bound by the New York Convention, the award will still be recognised under similar terms.

Enforcement (by a national or foreign lender) may generally be impacted by the laws of general application affecting the rights of creditors generally or the enforcement of creditors’ rights, such as bankruptcy, insolvency, pre-insolvency, dissolution or liquidation.

Finally, in order to be admissible for enforcement in the Portuguese courts, documents must be accompanied by a legalised translation into Portuguese.

Credit activity is a regulated activity in Portugal, so credit operations may only be undertaken – on a steady professional basis – by credit institutions or financial companies that are duly registered or authorised with the Bank of Portugal or otherwise pursuant to the Legal Framework of Credit Institutions and Financial Companies.

The issuance of bonds integrated in a Portuguese clearing system is an alternative way to raise financing, notably when the participating lending entities are not entitled to grant loans, for regulatory reasons.

In the Portuguese jurisdiction, no different rules apply to the granting of security or guarantees to domestic or foreign lenders.

Decree-Law 138/2014 of 15 September sets out the legal framework for safeguarding strategic assets that are essential to ensure national defence and security and the country’s security of supply, concerning services that are critical to the national interest, in the energy, transport and communications sectors.

This regulation targets transactions that:

• involve the control of strategic assets in the above-mentioned sectors, directly or indirectly, by an entity from a country outside the EU and the EEA; and
• may jeopardise – in a real and “sufficiently serious” way – national defence and security or the security of Portugal’s supply of services essential to the national interest.

The law establishes an opposition procedure, which includes a risk assessment phase of the operation, to begin within 30 days of the execution of the legal instruments relating thereto (or the date on which they become generally known). Subsequently, the Council of Ministers is allowed to approve a (reasoned) decision to oppose the operation, taken in accordance with the legal criteria, rules and principles, in particular the principle of proportionality.

Subject to the legal rules on the fight against money laundering and terrorist financing, there is no limitation on payments abroad or the repatriation of capital by foreign investors.

Portuguese project companies may open and maintain foreign currency accounts in foreign jurisdictions. However, project finance deals in Portugal usually provide contractual restrictions regarding the opening and maintenance of bank accounts by the project company other than the project's accounts with the account bank, which is usually a Portuguese credit institution.

Other than in cases of security registration (see 2.1 Assets Available as Collateral to Lenders), financing agreements do not have to be registered or filed with a governmental body in order to be valid or enforceable.

As a rule, PPP agreements, such as (sub)concession contracts, are subject to prior assessment by the Court of Auditors for the purpose of approval of the associated public expenditure. The submission of the agreements to the Court of Auditors is conducted by the public party.

Under Portuguese law, natural resources are typically of public domain and cannot be owned by private entities, falling outside legal trade. However, it is possible to grant private entities the right to use and exploit natural resources by means of a concession or licence, the terms and conditions of which may vary according to the applicable regulatory framework and sector, and may include authorisation for the specific activity.

Apart from these cases, land and assets may generally be held by private entities. This should not differ whether the private entity is national or foreign.

That being said, it should be noted that, in PPPs and Portuguese project finance deals, the rule is that the main titles and licences should be borne by the project company, which should be subject to Portuguese law and have its registered office in Portugal.

Portuguese law does not recognise the concept of trusteeship.

By contrast, agency is recognised in Portuguese practice and is used particularly in syndicated financing deals, which usually involve a security agent, facility agent(s) and intercreditor agent.

Bond structures normally involve a bond agent, a security agent and a calculation and paying agent.

The priority of competing security interests over real estate, movable assets subject to registration (such as motor vehicle, ships and aircraft), “quotas” and shares is determined by the date of their registration in the relevant register. The priority of security interests over assets that are not subject to registration is determined by the chronological order of their creation.

Upon the release of a senior rank of security, any other security over the same asset or right is automatically elevated to the immediately preceding rank.

Contractual subordination – through which certain creditors agree to rank behind other creditors in priority for being repaid by the debtor – is allowed under Portuguese law and is often used in Portuguese project finance deals. It is normally implemented by waterfall provisions of intercreditor agreements.

Contractual subordination is recognised in insolvency, pursuant to Article 48(c) of the Portuguese Insolvency and Corporate Recovery Code.

Structural subordination is not common in Portuguese project finance deals.

As a rule, PPPs in Portugal are awarded in the context of international public tenders, in which either domestic or foreign bidders are allowed to participate. Bearing in mind the large size of the projects, bidders typically form consortia to submit their offers.

Tender specifications generally provide that the members of the winning consortium have to set up a company incorporated in Portugal (and thus governed by Portuguese law) to execute and perform the contract with the public party.

In PPPs, the project company should typically be a private company limited by shares (sociedade anónima) and have its registered office in Portugal. These corporate requirements, along with others (such as limitations on the reduction of the share capital, limitations on the amendments of the company’s articles of association and shareholder agreements, and limitations on the transfer and encumbrance of shares), are typically reflected in the tender specifications and in the PPP agreements executed with the Portuguese State or other public parties. They are also the legal default rule for concession agreements.

Portuguese private companies limited by shares are also the vehicles normally set up to carry out private project finance deals in Portugal, mainly because the shares representing their share capital may be pledged to the benefit of the project lenders under the financial collateral framework, which would not be the case if the other legal form of Portuguese limited companies (sociedades por quotas) was adopted.

Portuguese law provides for three company reorganisation procedures:

• the Out-of-Court Company Recovery Scheme (Regime Extrajudicial de Recuperação de Empresas – RERE);
• the Special Revitalisation Process (Processo Especial de Revitalização – PER); and
• the Recovery Plan in the context of insolvency proceedings.

Out-of-Court Company Recovery Scheme (RERE)

Regulated by Law 8/2018 of 2 March, the RERE is a voluntary out-of-court legal scheme that companies and their creditors can use to reach a restructuring agreement. Participation in this procedure is free, and the company can invite all or only some of its creditors to take part in the negotiations.

The RERE begins with the deposit at the Commercial Registry Office of a negotiation protocol between the company and creditors representing at least 15% of its unsubordinated liabilities. A declaration by a certified accountant or statutory auditor issued no more than 30 days earlier must be annexed to the negotiation protocol attesting to compliance with this requirement.

The restructuring agreement may include:

• the terms of the restructuring of the debtor's economic activity;
• the debtor's liabilities;
• the debtor's legal structure;
• the new financing to be granted to the debtor (if applicable); and
• the new guarantees provided.

Special Revitalisation Procedure (PER)

Provided for in the Portuguese Insolvency and Corporate Recovery Code, the PER allows a company that is proven to be in a difficult economic situation or that is merely facing imminent insolvency, but which is still capable of recovery, to enter into negotiations with its creditors in order to conclude an agreement with them leading to its revitalisation.

When a company files for a PER, it prevents debt collection enforcement proceedings being brought against the debtor, except in relation to employment debts. The PER also implies a suspension of any pending debt collection enforcement proceedings, except in relation to employment debts, and of all insolvency proceedings, provided that insolvency has not yet been declared.

The PER can follow two different proceedings:

• the negotiation of a recovery plan (this is the most common option in Portugal); or
• an out-of-court recovery agreement.

The PER procedure seeking the negotiation of a recovery plan begins with a written statement signed by the debtor and by at least one of its creditors (not necessarily the main creditor) holding at least 10% of non-subordinated credit stating that the debtor intends to enter into negotiations with creditors with an aim of achieving the debtor's recovery through the negotiation of a recovery plan. Among other documents, the debtor must also file a proposal for a Recovery Plan seeking its revitalisation and a declaration issued no less than 30 days by a statutory auditor or chartered accountant demonstrating that the debtor meets the requirements for the PER to be granted (ie, the debtor is in a situation of financial difficulty or an imminent insolvency situation, but its recovery is still possible).

Recovery Plan in the Context of Insolvency Proceedings

Also provided for in the Portuguese Insolvency and Corporate Recovery Code, the Recovery Plan may be presented by the insolvency administrator, the debtor or any person legally responsible for the debtor's debts, or any creditor or group of creditors whose credits represent at least 20% of the total of non-subordinated claims.

The Recovery Plan must give equal treatment within the same category of credits (par conditio creditorum), and must not treat a creditor worse than it would be treated in the absence of an insolvency plan/in a liquidation scenario (no creditor worse off). The Recovery Plan, which may contain measures that affect the debtor's liabilities and/or may contain corporate reorganisation measures, must be approved by the majority of votes and can only affect or interfere with the rights of third parties if such is expressly authorised by law or consented to by those concerned.

Upon the declaration of insolvency, all security other than financial pledges (which have a specific regime referring to insolvency proceedings and their consequences) over the insolvent assets must be enforced within the insolvency proceedings, and the payment of creditors' claims must be made in accordance with the Portuguese Insolvency and Corporate Recovery Code. The insolvency proceedings trigger the suspension of any ongoing enforcement proceedings and the seizure of the insolvent assets, and prevent the enforcement of security, as well as new enforcement proceedings.

Once insolvency has been declared, all creditors must claim their credits and provide evidence of any security as collateral thereto within the insolvency proceedings.

After payment of the costs of the insolvency, which include court fees and costs, and fees of the insolvency administrator (which must be settled prior to all other claims), creditors must be paid in the following order:

• employees' claims over the specific company premises where they carry out their activity;
• property taxes;
• secured claims – claims with in rem security over assets of the insolvent estate up to the value of those assets;
• preferential claims – notably:
1. general creditors' preferential claims over the assets of the insolvent estate up to the value of the assets over which such preferential claims exist, and where the claims are not extinguished in consequence of the declaration of insolvency;
2. certain debts to the tax and social security authorities;
3. claims by creditors that have provided capital to finance the insolvent's activity during the proceedings over all movable assets of the insolvent; and
4. claims by the party that applied for the opening of the insolvency proceedings;
• unsecured claims; and
• subordinated claims, including the credits of related parties.

The main risk is that the insolvency administrator can claw back acts performed by the debtor up to two years before the insolvency proceedings were started if they are detrimental to the best interests of the insolvent estate. The law defines detrimental acts as any act that reduces, frustrates, obstructs, endangers or delays the satisfaction of creditors. As a rule, claw-back requires the bad faith of the third party. There is a legal assumption of bad faith when the act or omission occurred within the two years prior to the beginning of the insolvency proceedings where a person in a special relationship with the insolvent participated in or took advantage of that act or omission. Certain transactions are deemed to be detrimental regardless of bad faith and, as such, may be unconditionally clawed back.

The claw-back has retroactive effects, meaning the insolvent’s estate will be put in the position that would have existed if the act had not been performed. The claw-back may be carried out by the insolvency administrator by registered letter within a maximum of six months of the insolvency administrator becoming aware of the relevant act, but no later than two years after the declaration of insolvency.

The Portuguese Insolvency and Corporate Recovery Code (Decree-Law 53/2004 of 18 March) expressly excludes the following:

• public legal entities and public companies; and
• insurance companies, credit institutions, financial companies, investment companies that provide services involving the holding of funds or securities of third parties, and collective investment undertakings.

The applicable legislation for these entities is as follows:

• for public companies: Decree-Law 133/2013 of 13 October;
• for insurance companies: Law 147/2015 of 9 September;
• for credit institutions: Decree-Law 298/92 of 31 December; and
• for financial companies, investment companies providing services involving the holding funds or securities of third parties, and collective investment undertakings: Decree-Law 109-H/2021 of 10 December.

Insurance and reinsurance business in Portugal can only be carried out by Portuguese-based or foreign entities authorised by the Portuguese regulatory entity (Autoridade de Supervisão de Seguros e Fundos de Pensões) or otherwise pursuant to the requirements set out in the applicable legislation.

Subject to the above, there are no restrictions on insurance policies over project assets being provided or guaranteed by foreign insurance companies, and no specific taxes or charges apply in connection therewith.

There are no specific taxes in connection with insurance policies being provided or guaranteed by insurance companies.

Payments under insurance policies covering project assets in Portugal may be made to foreign creditors.

Under the Corporate Income Tax Code, interest paid by a Portuguese resident to a non-resident entity is subject to withholding tax at a final rate of 25%. The rate is 35% if the entity is in a country on the “blacklist” issued by the Portuguese Ministry of Finance or for a bank account where the beneficial owner is not disclosed. This withholding tax may be reduced under a Double Tax Treaty, with tax rates usually varying between 10% and 15%.

Withholding tax can be waived or reduced under the EU Interest and Royalties Directive or the EU Parent-Subsidiary Directive. Under the EU Interest and Royalties Directive, no withholding tax is due on interest payments made by residents, provided that:

• both entities are subject to (and not exempt from) corporate tax and take a legal form listed in the directive’s annex;
• both entities are considered EU residents;
• a direct 25% shareholding is held by one of the entities in the other’s capital, or they are sister companies; and
• the entity being paid the interest is the beneficial owner.

Resident lenders are also subject to corporate income tax, but it is levied against the lender's final income rather than being charged as withholding tax on a gross basis.

Stamp tax is levied on loans made to a Portuguese borrower and by a resident or non-resident lender, at a rate of up to 0.6% of the value of the loans, depending on the loan maturity. It should be borne by the borrower.

Stamp tax is also levied against interest payments and fee payments received under a loan, borne by the borrower at a rate of 4%.

Stamp tax applies to security interests provided (calculated over the secured amount) at a rate of up to 0.6%, unless such guarantees are ancillary to the secured obligation and are granted on the same day (in which case an exemption applies).

Under Portuguese law, in addition to the criminal framework, there are two main legal regimes regarding usury: one for credit agreements between professionals, and another for agreements between credit or financial institutions and consumers.

Regarding the first situation, the Portuguese Civil Code stipulates that any loan agreement containing an annual interest rate greater than the legal interest rate, plus 3%, is always considered a usurious agreement, and the interest rate will be considered reduced to that level.

Decree-Law No 133/2009 on consumer credit between credit institutions and consumers considers an agreement to be usurious, among others, whenever the overall effective annual rate (TAEG) at the time of the conclusion of the agreement exceeds the average TAEG applied by the credit institutions in the previous quarter for each type of credit agreement by 25%, or exceeds the average TAEG for consumer credit agreements entered into in the previous quarter by 50%.

Project finance deals involve a complex and sophisticated contractual structure. Subject to the specific nature of each transaction, the usual key project agreements are as follows:

• the concession agreement/management agreements/licence is the main contract/instrument of the structure, under which the project company is granted the right to carry out the project;
• the construction agreement governs the design and construction of the project infrastructure, and often also the expropriation activities required for the implementation of the project;
• the O&M agreement governs the operation and maintenance of the project infrastructure;
• the articles of association of the project company;
• the shareholder agreement governs the rights and obligation of the sponsors of the project in their capacity as shareholders of the project company, notably in respect of the governance of the company, key aspects of the company’s activity and limitations on the encumbrance and transfer of shares;
• the equity subscription agreement between the project company and its shareholders governs the shareholders’ obligations in relation to the company’s capitalisation, including the amounts involved, which in most cases corresponds to the maximum exposure of the shareholders to the project, the instruments used (share capital, ancillary contributions or shareholder loans) and the timing of contributions; and
• direct agreements – typically, there are two sets of direct agreements:
1. those between the PPP public party and the counterparties of the project company in the financing agreements and the construction and O&M arrangements. These agreements normally give the public party the required comfort concerning the stability of the performance of the relevant finance and project agreements if the public party exercises its supervision and instruction powers and other rights of intervention under the main contract (eg, in case of the seizure of a concession). The direct agreement with the finance parties also rules the step-in rights. The public party gives the lenders the right to replace the project company in the main agreement if the latter is in default, in order to remedy the default, thus avoiding early termination thereof; and
2. similar direct agreements are entered into between the finance parties and counterparties of the project company in the construction and O&M agreements. These arrangements form part of the finance documents.

The above-mentioned contracts are typically governed by Portuguese law, by imposition of the law or otherwise.

The key finance documents in a simplified project finance deal are as follows.

• The common terms agreement (CTA).
• The facility agreement (or agreements) sets out the terms and conditions of the credit facilities, the purposes of which mirror the transaction specific needs, including:
1. those required to fund the capital investments for the project implementation, the operating costs, financial costs and taxes;
2. a credit line related to the issue of the performance bond (usually in the form of a bank guarantee) in favour of the PPP public party under the relevant PPP agreement (bonding facility);
3. facilities to guarantee the repayment of loans granted by the European Investment Bank (EIB) (whenever the EIB forms part of the project lenders syndicate, a specific facility agreement is executed in relation to the EIB facility contracted); and
4. a standby facility aimed at covering the costs of the project over-running.

• The accounts agreement governs the conditions to operate the project accounts.
• The intercreditor agreement between the project company’s main creditors, namely the commercial lenders, the EIB (when applicable), the hedging banks (where applicable) and, in some cases, the company’s shareholders (holders of subordinated credits by application of law) governs their relations, as creditors of the project company, in relation to matters of common interest.
• The call option agreement between the project company’s shareholders and the finance parties governs the conditions for the exercise of the call option right over the company’s shares as a way of implementing the lender’s step-in rights (see 2.1 Assets Available as Collateral to Lenders (Other Contractual Arrangements)).
• The security agreement governs the creation of the project security package (see 2.1 Assets Available as Collateral to Lenders).

Bond structures involve bond subscription agreement(s) and a calculation and payment agreement.

It is market practice for the financing agreements to include typical arrangements on finance, information, negative and restrictive covenants, detailed waterfall mechanisms regarding receivables and permitted withdrawals, and the full security package. In addition, the lenders and their representatives are given extensive monitoring and control powers over the activity of the project company.

The CTA, facility(ies) agreements and intercreditor agreements involving international lenders are governed by Portuguese or English law. English law usually applies to the EIB facility agreements.

The bond subscription agreement, the security agreement, the security-related documents, the call option agreement and the accounts agreement are governed by Portuguese law, because they govern matters involving assets located in Portugal or domestic securities and companies.

Generally speaking, apart from all issues underlying the contractual relationship between the public and private parties in a PPP and all matters and activities subject to Portuguese regulation, the matters usually governed by Portuguese law are those relating to the following topics:

• real estate in Portugal;
• movable assets and rights (such as securities) subject to mandatory registration in Portugal;
• the bankruptcy or pre-bankruptcy proceedings of entities domiciled in Portugal; and
• Portuguese law companies and other entities – notably the rules for their setting up, functioning and dissolution, and the governance and actions of their corporate bodies.