Bond Indenture Definition, Meaning

an indenture is a legal document that details the rights of bondholders

For purposes of this opinion, I use the term “bonds” and “debentures” interchangeably, overlooking for the moment their technical differences relating to whether or not the note is secured. Accordingly, Article 13 precludes recovery on a breach of contract theory from all defendants other than the issuer, Knoll International, Inc. Thus, the complaint having failed to state against such defendants any non-contractual claim upon which relief may be granted, the pending motion to dismiss as to them shall be granted. It is concluded (¶ 17) that, “the defendants have ignored and breached the fiduciary duty of fair dealing they owe Knoll’s debenture holders in structuring and proposing the Merger.” In sum, the complaint alleges that unless stopped, the Company will eliminate the single protection available to Bondholders– the unequivocal right to access financial information about the Company to whom they lent money. Chapman’s “Bankruptcy and Aircraft Finance” handbook details certain special rights afforded aircraft creditors and some of the strategies employed.

an indenture is a legal document that details the rights of bondholders

Because these bonds are riskier, they pay a higher yield than bonds from than same issuer that is backed by collateral. If the issuer defaults, then the holder of a debenture is a general creditor of the issuer, but if the bond is backed by collateral, then the collateral is sold, or used, to pay the collateralized bondholders. A bond indenture may also restrict the amount of stock dividends that can be paid, if the earnings of the company are less than a specified amount, since the payment of stock dividends lessens the equity of the company, and may impair its ability to make future interest payments and repay principal. A bond rating is a rating that independent agencies issue to measure the credit quality of a particular bond. The bond rating measures the financial strength of the company issuing the bond, and its ability to make interest payments and repay the principal of the bond, when due.

Land and real estate investments are considered non-liquid assets because it can take months for a person or company to receive cash from the sale. While liquid assets can be easily sold for cash and have a stable market price, non-liquid assets cannot be quickly sold for cash and prices can be much more volatile. Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds’ maturity date. When an issuer calls its bonds, it pays investors the call price together with accrued interest to date and, at that point, stops making interest payments. A term bond refers to bonds from the same issue with the same maturity dates.

“holder” or “bondholder” or “owner of the Bonds” or “Bondholder” shall mean the registered owner of any Bond. “First Mortgage Bonds” shall mean one or more series of bonds issued and delivered under the Company Mortgage and held by the Trustee pursuant to Section 5.9 of the Loan Agreement. “Event of Default” shall mean any event of default specified in Section 10.1 hereof. All the rights and interest of the Issuer in and to the Bond Fund, and all moneys and investments therein, but subject to the provisions of the Loan Agreement and this Indenture pertaining thereto, including those pertaining to the making of disbursements therefrom. Contrary to popular belief, indentures do not have numerous, detailed covenants to protect bondholders.

Bond Indenture Example: Guide To Bonds Legal Binding Agreement

This is the interest rate stated on the face of the bond. Principal amount would be paid back at the end of 5 years from the date of issuance. Or, we can say, it is the date when the bondholders get back the face amount of the bond.

In connection with that merger, a Supplemental Indenture was executed by the issuer and the indenture trustee providing that, instead of each $19.20 of principal amount of the debentures being convertible into one share of Knoll Class A Common Stock, such principal amount would henceforth be convertible into the consideration received by the public Class A shareholders in the merger $12 cash. The core complaint is that the substitution of a right to convert to $12 in lieu of a right to convert to Class A Common Stock is unfair and a wrong. The Bonds are limited and special obligations of the Issuer and do not constitute or create an obligation, general or normal balance special, debt, liability or moral obligation of the State or any political subdivision thereof within the meaning of any constitutional or statutory provisions whatsoever and neither the faith or credit nor the taxing power of the State or of any political subdivision thereof is pledged to the payment of the principal of or premium, if any, or the interest on the Bonds. The Bonds are not a general obligation of the Issuer but are a limited and special revenue obligation of the Issuer payable solely out of the Trust Estate, including the Revenues. No recourse under this Bond shall be had against any past, present or future officer or trustee of the Issuer.

an indenture is a legal document that details the rights of bondholders

Capitalized terms used herein and not defined herein shall have the meaning assigned thereto in the Indenture or in the Agreement. Any moneys received by or paid to the Trustee pursuant to any provision of the Loan Agreement calling for the Trustee to hold, administer and disburse the same in accordance with the specific provisions of the Loan Agreement shall be held, administered and disbursed pursuant to such provisions, and where required by the provisions of the Loan Agreement the Trustee shall set the same aside in a separate account. The Issuer agrees that, if it shall receive any moneys pursuant to applicable provisions of the Loan Agreement, it will forthwith upon receipt thereof pay the same over to the Trustee to be held, administered and disbursed by the Trustee in accordance with the provisions of the Loan Agreement pursuant to which the Issuer may have received the same. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder and in all resolutions pertaining thereto. With respect to notice of redemption of the Bonds at the option of the Issuer , unless moneys sufficient to pay the principal of and premium, if any, and interest on the Bonds to be redeemed shall have been received by the Trustee prior to the giving of such notice, such notice shall state that said redemption shall be conditional upon the receipt of such moneys by the Trustee on or prior to the date fixed for such redemption. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, notice of any redemption will be given by the Trustee to Cede & Co., not to the beneficial owners of the Bonds, as set forth above or by email.

A bond covenant is a legally binding term of an agreement between a bond issuer and a bondholder, designed to protect the interests of both parties. Bondholders will now have access to financials and other corporate information pursuant to the amended Fourth Supplemental Indenture once Phoenix is no longer required to file reports with the Securities and Exchange Commission (“SEC”).

In investment, the bond credit rating assesses the credit worthiness of a corporation ‘s or government’s debt issue. The credit rating is analogous to a credit rating for individuals. The “quality” of the issue refers to the probability that the bondholders will receive the amounts promised on the due dates. A bond is considered investment -grade if its credit rating is BBB- or higher by Standard & Poor’s, or Baa3 or higher an indenture is a legal document that details the rights of bondholders by Moody’s, or BBB or higher by DBRS. Bond ratings below BBB/Baa are not considered to be investment grade; such bonds are called junk bonds. When the offering memorandum is prepared in advance of marketing a bond, the indenture will typically be summarized in the “description of notes” section. This offering memorandum, also known as a prospectus, is a document that describes a financial security for potential buyers.

Bonds By Their

On April 9, 2021, the Securities and Exchange Commission Division of Examinations issued a Risk Alert highlighting observations made by the Division from recent examinations of investment advisers, registered investment companies, and private funds offering products and services that incorporate environmental, social, and governance factors. This Bond is issued with the intent that the laws of the State of Mississippi will govern its construction. As declared by the Act and other applicable laws of the State of Mississippi, this Bond shall have all the qualities and incidents, including negotiability, of an investment security under the Uniform Commercial Code of the State of Mississippi.

The bond Indenture also includes the details of the rights of ownership as well as the rights of the bondholder to receive interest payments and principle payments in the future. A debenture is one of the most typical forms Online Accounting of long term loans that a company can take. It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities . The majority of debentures come with a fixed interest rate.

an indenture is a legal document that details the rights of bondholders

The issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest and/or to repay the principal at a later date, termed the maturity. Between bond issuers and bondholders, an indenture is a legal and binding contract specifying all the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation and callable or convertible features, if applicable.

The indenture agreement is a document that is written and signed as a formal way to dispute any legal disagreements between the issuer and bondholders. An indenture agreement is not the same as a prospectus, which is a summary description. The prospectus outlines the goals and structure of the bond company and is a legal and formal document. Bond indenture is a legal document or a contract that specifies the rights of the bondholders. The indenture may have various covenants that decrease the probability of default of the bond.

It carries the dates when the bondholders will get the interest payments. These so-called vulture investors are using this method to take income summary advantage of companies caught up in the options backdating scandals, which has caused their bond prices to drop in the secondary market.

An indenture agreement is the formal contract between a bond issuer and the bondholders. It sets forth the details of all the terms and conditions of the bonds, such as the exact day of their maturity, the timing of the interest payments and how they are calculated, and the details of any special features. In the United States, public debt offerings in excess of $10 million require the use of an indenture cash flow of trust under the Trust Indenture Act of 1939. The rationale for this is that it is necessary to establish a collective action mechanism under which creditors can collect in a fair, orderly manner if default takes place . No trust relationship exists between the bondholder and the issuing corporation. These two are in a regular contractual, arm’s length, non-fiduciary, non-equity relationship.

What Does An Indenture Trustee Do?

It takes time and consideration of the current market to sell real estate, thereby making it difficult to access your investment dollars. Bond ratings are important not only for their role in informing investors, but also because they affect the interest rate that companies and government agencies pay on their issued bonds.

In non-secured, uncollateralized bond offerings, these indentures can also be called debentures. In real estate, an indenture is a deed in which two parties agree to continuing obligations. For example, one party may agree to maintain a property and the other may agree to make payments on it. An indenture is a legal and binding contract usually associated with bond agreements, real estate, or bankruptcy.

The risk/reward ratio helps investors manage their risk of losing money on trades. Even if a trader has some profitable trades, he will lose money over time if his win rate is below 50%. The risk/reward ratio measures the difference between a trade entry point to a stop-loss and a sell or take-profit order. Most loans with good interest require some form of collateral from you. Good interest loans help you to achieve a lower interest rate since the risk of loss is decreased for the financial institution. With all interest, you take a certain amount of good in with the bad.

  • Convertible bonds, for instance, can be converted into the common stock of the issuer, or put bonds can be sold back to the issuer before maturity for par value.
  • The proceeds of the sale of any Additional Bonds shall be applied pursuant to Section 2.11 of this Indenture.
  • Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure.
  • Bond ratings are important not only for their role in informing investors, but also because they affect the interest rate that companies and government agencies pay on their issued bonds.
  • If you are a credit card holder, knowledge of the workings of compound interest calculations may be incentive to pay off your balances quickly.
  • Good interest loans help you to achieve a lower interest rate since the risk of loss is decreased for the financial institution.

Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization. Formulas for calculations to prove the issuer is meeting the covenants. An affirmative covenant is a type of promise or contract that requires a party adhere to certain normal balance terms. Below are some of the common types of indentures and clauses that may be associated with indenture contracts. An indenture provides detailed information on terms, clauses, and covenants. Our experts will answer your question WITHIN MINUTES for Free.

Which Of The Following Details Are Mentioned In An Indenture Contract?

Upon the occurrence and continuance of an Event of Default, the Trustee may, in addition or as an alternative, pursue any available remedy by suit at law or in equity to enforce the payment of the principal of and premium, if any, and interest on the Bonds then outstanding hereunder, then due and payable. The proceeds of the Series 2021 Bonds shall be deposited in the bond fund created under the indenture governing the Series 2019 Bonds, together with moneys of the Company deposited in such bond fund, in order to redeem $83,695,000 in aggregate principal amount of the Series 2019 Bonds on the Refunding Date. The proceeds of the sale of any Additional Bonds shall be applied QuickBooks pursuant to Section 2.11 of this Indenture. Except as otherwise provided in Sections 5.8 and 11.2 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds and for the redemption or purchase of Bonds. The proceeds of the issuance and sale of any series of Additional Bonds, including purchase premium, if any, and accrued interest, if any, thereon to the date of delivery thereof paid by the Underwriter, shall be applied simultaneously with the delivery of such Additional Bonds in the manner provided in this Indenture and in the supplemental indenture authorizing such Additional Bonds.

The Issuer covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indenture or indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, pledging, assigning and confirming unto the Trustee the Trust Estate. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the holder or owner receives the notice. With respect to Bonds registered in the name of a Securities Depository neither the Trustee, the Issuer nor the Company shall have any obligation to any of its members or participants or to any Person on behalf of whom an interest is held in the Bonds. Notwithstanding anything herein to the contrary, no Additional Bonds shall be issued unless the Loan Agreement is in effect, and at the time of issuance there is no Event of Default under the Loan Agreement or Event of Default under this Indenture. All Bonds surrendered for the purpose of payment or retirement, or for exchange, or for replacement or payment as provided above, or for cancellation, shall be canceled upon surrender thereof to the Trustee and, at the option of the Trustee, either cremated, shredded or otherwise disposed of. The Trustee shall execute and forward to the Issuer an appropriate certificate describing the Bonds involved and the manner of disposition. The Series 2021 Bonds shall be substantially in the form set forth in Exhibit A attached hereto with such appropriate variations, omissions and insertions as are permitted or required by this Indenture.

What Information Is Contained In A Bond Indenture?

In case, the issuer breach the terms of the indenture, then the trustee has the right to sue to the issuer on behalf of the bondholders. Also, bondholders can report any valid issue to the trustee, following which the trustee can take apt legal actions. A Bond Indenture is basically a contract between the issuer of the bond and the bondholder.

The indenture is then scrutinized closely to make sure there is no ambiguity in calculating the financial ratios that determine whether the issuer is abiding by the covenants. In the U.S., there can be several types of indentures, all typically involved with debt agreements, real estate, or bankruptcy. In this lesson, you’ll learn the definition of bond risk and explore the different types of bond risk. These include credit/default risk, interest rate risk, inflation rate risk, reinvestment risk, and liquidity risk. Reliance by the panel in Broad I on identical dicta of Justice Douglas in two cases (Pepper v. Litton, 308 U.S. 295, 311, 60 S. Ct. 238, 247, 84 L. Ed. 281 and Superintendent of Insurance v. Banker’s Life & Casualty Co., 404 U.S. 6, 12, 92 S. Ct. 165, 169, 30 L. Ed. 2d 128 ) surely provides too frail a support for the conclusion reached. I need not now dilate upon those cases except to say that they were actions brought by a trustee in bankruptcy on behalf of a bankrupt corporation against a controlling shareholder for breach of fiduciary duty.

Types Of Indentures

This is to ensure that the bondholder has a clear idea of when to expect interest payments, as well as whom to contact if he or she has questions or concerns. If the company fails to live up to the terms of the bond indenture, the trustee may bring legal action against the company on behalf of the bondholders.

Bonds present an option for investing in long-term debt. Let’s take a look at bonds and the indenture agreement that states key details specific to it, such as seniority, repayment, call provision, and protective covenants.

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