The new law governing Portuguese covered bonds was enacted in March 2006 after a period of extensive consultation with the main market participants, aiming at creating a Portuguese model based on the best practices of established European covered bond legislation.
As in most jurisdictions, the Portuguese legislation allows for the issuance of two forms of covered bonds, mortgage-covered bonds (obrigações hipotecárias) and public sector covered bonds (obrigações sobre o sector público), on which the collateral is credits to, or guaranteed by central or local governments in an EU member state. Both forms of bond may be issued either directly out of the originator’s balance sheet or through a dedicated issuing bank. The direct issuance alternative has, so far, been the elected route of Portuguese banks because it combines the same investor protection features with increased administrative and cost efficiency.
