CandleFocus Glossary Editor
A trust indenture, sometimes referred to as a “bond indenture”, is a legally binding contract between the bond issuer and a third-party trustee on behalf of the bondholders. The structure of the bond indenture generally provides the conditions under which the bonds are created, the rights of the bondholders, their entitlements and any other related information.
The trust indenture is the most important document an issuer needs to create when issuing bonds, as it guard all interests of bondholders in a manner that complies with all relevant securities laws. This document must be filed with appropriate regulatory authorities before bond issuance, and provides investors an insight into the terms of the bonds they’re investing in.
Under the trust indenture, the issuer and the trustee have certain duties and responsibilities. The primary duties are to ensure the payment of redemption or coupon payments when due, and to trigger a potential default if payments are not made on time. The trustee is especially responsible for administering and overseeing the bonds, as well as ensuring compliance with all terms of the bond indenture.
The trust indenture also includes specific conditions that the issuer must satisfy before it can issue any additional debt, or involve in any other financing transactions. It also specifies the amount of additional debt that the issuer can assume, along with the procedures and other formalities required in case of an issuer default. Such guidelines provide an additional cushion of protection to the bondholders from incurring any losses due to the issuer’s financial mismanagement.
In addition, the trust indenture is used to protect investors’ interests in other ways such as providing information on the board of directors’ involvement with certain decisions, providing declarations such as environmental and labor information, providing details on pledge of assets, and details on the issuer’s shareholders’ agreement to redeem the bonds as per rules and regulations mentioned in the trust indenture.
In the United States, most corporate bond issues with a face value of over $5 million are required to include a trust indenture, which needs to be filed with the Securities and Exchange Commission (SEC). Apart from bonds, other types of securities may require the filing of a trust indenture as well.
Overall, a trust indenture is a key document for an issuer’s bond issue. It provides the most important information about the bonds, including the issuer’s obligations and any additional obligations to the bondholders. It also protects the interests of bondholders by setting out the terms of callability, and also provides guidelines to the issuer in performing other transactions and determining additional debt capacity.
The trust indenture is the most important document an issuer needs to create when issuing bonds, as it guard all interests of bondholders in a manner that complies with all relevant securities laws. This document must be filed with appropriate regulatory authorities before bond issuance, and provides investors an insight into the terms of the bonds they’re investing in.
Under the trust indenture, the issuer and the trustee have certain duties and responsibilities. The primary duties are to ensure the payment of redemption or coupon payments when due, and to trigger a potential default if payments are not made on time. The trustee is especially responsible for administering and overseeing the bonds, as well as ensuring compliance with all terms of the bond indenture.
The trust indenture also includes specific conditions that the issuer must satisfy before it can issue any additional debt, or involve in any other financing transactions. It also specifies the amount of additional debt that the issuer can assume, along with the procedures and other formalities required in case of an issuer default. Such guidelines provide an additional cushion of protection to the bondholders from incurring any losses due to the issuer’s financial mismanagement.
In addition, the trust indenture is used to protect investors’ interests in other ways such as providing information on the board of directors’ involvement with certain decisions, providing declarations such as environmental and labor information, providing details on pledge of assets, and details on the issuer’s shareholders’ agreement to redeem the bonds as per rules and regulations mentioned in the trust indenture.
In the United States, most corporate bond issues with a face value of over $5 million are required to include a trust indenture, which needs to be filed with the Securities and Exchange Commission (SEC). Apart from bonds, other types of securities may require the filing of a trust indenture as well.
Overall, a trust indenture is a key document for an issuer’s bond issue. It provides the most important information about the bonds, including the issuer’s obligations and any additional obligations to the bondholders. It also protects the interests of bondholders by setting out the terms of callability, and also provides guidelines to the issuer in performing other transactions and determining additional debt capacity.