What Is A Bond Indenture? - Xplore Institute
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What Is A Bond Indenture?

bond indenture agreement

In the fixed-income market, an indenture is hardly ever referred to when times are normal. But the indenture becomes the go-to document when certain events take place, such as if the issuer is in danger of violating abond covenant.

  • Mortgage bonds are bonds where real estates, equipment, and other tangible assets are kept as collateral.
  • Holders of Bonds subject to mandatory tender for purchase on the Mandatory Tender Date shall have no right to retain their Bonds and shall be required to tender such Bonds no later than the Mandatory Tender Date as provided herein.
  • Except as otherwise provided in this Section 2.03, the Bonds in the form of one separate global bond for each subseries shall be registered in the name of the Securities Depository or its nominee and ownership thereof shall be maintained in book entry form by the Securities Depository for the account of the Agent Members thereof.
  • That idea seems unrealistic in the day of book entry securities and electronic markets where sellers and buyers are anonymous to each other.
  • The action you just performed triggered the security solution.

The Registrar and Paying Agent shall keep or cause to be kept at its principal office books (herein referred to as the “books of registry” or “registration books”) for the registration and transfer of the Bonds. Upon presentation at its principal office for such purpose the Registrar and Paying Agent, under such reasonable regulations as it may prescribe, shall register or transfer, or cause to be registered or transferred, on said books of registry, the Bonds as hereinafter set forth. The books of registry shall at all times during business hours be open for inspection by the Authority, the Company and the Trustee or their duly authorized agents or representatives. Pursuant to the Participation Agreement, the Company has agreed not to request that the interest rate mode applicable to the Bonds be adjusted to an Adjustable Rate or a Fixed Rate unless on the effective date of the applicable Change in the Interest Rate Mode the Bonds to be converted shall be rated at least “A” by S&P or “A2” by Moody’s or “A” by Fitch or an equivalent rating by any nationally recognized rating agency. Subject to the requirements of the Participation Agreement, such rating of the Bonds may, but is not required to, be achieved by obtaining a Support Facility which meets the requirements of this Article VI. The Company has further agreed to maintain a Liquidity Facility meeting the requirements of the Participation Agreement with respect to the Bonds at all times, except with respect to Bonds bearing interest at an Auction Rate, a Fixed Rate or a Term Rate for a Calculation Period in excess of thirteen months.

Types Of Indentures

Nothing in this paragraph contained, however, shall be construed as requiring the giving of notice of any amending or supplementing of this Indenture authorized by this Section. A record of the consents shall be filed with the Trustee, and shall be proof of the matters therein stated until the contrary is proved. No action or proceeding to set aside or invalidate such Supplemental Indenture or any of the proceedings for its adoption shall be instituted or maintained unless such action or proceeding is commenced within sixty days after the mailing of the notice required by this paragraph. Trustee shall incur no liability whatsoever to the Authority, to any Holder or to any other person for any delay in applying any such moneys, so long as the Trustee acts with reasonable diligence, having due regard to the circumstances, and ultimately applies the same in accordance with such provisions of this Indenture as may be applicable at the time of application by the Trustee. Whenever the Trustee shall exercise such discretion in applying such moneys, it shall fix the date upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue.

  • Indentures are non-transferable; hence there are very limited options available to exit these contracts.
  • The Authority may provide for the recording or filing of any mortgage, deed of trust, security interest, other lien, financing statement, or other instrument necessary or desirable to create, perfect, or evidence any lien created pursuant to this chapter.
  • That is why the bond indenture is actually issued to a trustee or third party that represents the bondholders.
  • Since it is a regulated and legal contract, a bond indenture can have several formal components.
  • In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for Federal income tax purposes, the Authority, with the consent of the Company, may designate a new method of setting the Fixed Rate Index in the event any of the above-described methods are determined by the Authority to be unavailable, impracticable or unrealistic in the market place.
  • Interest accruing on Bonds bearing interest at an Auction Rate during an Auction Period of over 180 days shall be computed on the basis of a 360-day year, consisting of twelve thirty day months.

Business assets as a whole or substantially as a whole of such bank or trust company may be sold, shall be deemed the successor of the Trustee. Pursuant to Section 4.02 of the Participation Agreement, the Company has agreed that the Company shall, to the extent not paid from a draw or payment under a Liquidity Facility, provide funds to the Trustee for payment to, or provide funds directly to, the Registrar and Paying Agent for deposit in the Bond Purchase Fund and credit to the Company Account therein established under the Bond Purchase Trust Agreement to be applied to the payment of the Purchase Price of any Bond pursuant to the Bond Purchase Trust Agreement to the extent not otherwise provided from the sources described in the Bond Purchase Trust Agreement. The Trustee shall immediately apply an amount credited to the Acceleration Account equal to the principal amount of and accrued interest on the Bonds then Outstanding that have been declared to be immediately due and payable pursuant to Section 12.03 from funds described in Section 9.02. Upon the retirement of any portion of the Bonds by redemption pursuant to the provisions of this Section 9.03, the Trustee shall file with the Authority and the Company a statement stating the amounts of the Bonds so redeemed and setting forth the date of their redemption and the amount paid as principal, premium and interest thereon. The expenses in connection with the redemption of the Bonds shall be paid by the Company as Additional Payments. If other moneys are received by the Trustee as advance payments of Note Payments to be applied to the redemption of all or a portion of the Bonds, such moneys shall be deposited in the Bond Fund for credit to the Redemption Account therein. Bonds, upon surrender thereof at the principal corporate trust office of the Registrar and Paying Agent, together with an assignment duly executed by the Holder or his or her authorized agent and accompanied by a guarantee of signature, each in such form as shall be satisfactory to the Registrar and Paying Agent, may, at the option of the Holder thereof, be exchanged for an equal aggregate principal amount of Bonds of any denomination or denominations authorized by this Indenture and in the same form as the Bonds surrendered for exchange.

These are the dates or times when the holder will receive their coupon payments. Usually, it depends on how often the issuer intends to pay the holders. In other words, it represents the time when the issuer repays the holder. The bond’s maturity rate also plays a role in its market value and carrying value. Overall, a bond indenture is a document or contract attached to it. This contract includes details about several aspects of the bond. The issuer creates the document that sets the relationship between them and the holder.

How Does A Trust Indenture Work?

In most of these transactions, a third party facilitates the exchange. This party may consist of a guarantor, for example, a financial institution or bank. For bond indentures, this party acts as a trustee and becomes an intermediary in the transaction. Any such Alternate Support Facility shall specifically allow, in the case of the occurrence of any event or events which under the terms of such Alternate Support Facility or any agreement providing for the issuance thereof would cause the termination or expiration of such Alternate Support Facility, for the mandatory tender of the applicable Bonds pursuant to Section 5.09 with a draw on or borrowing or payment under such Alternate Support Facility prior to such termination or expiration.

Each registered owner of Bonds who has properly tendered such Bonds in accordance with the above provisions will be paid the Purchase Price, and if such Purchase Price is paid, such registered owner shall have no further rights with respect to said Bonds. Each registered owner of Bonds who has properly tendered such Bonds in accordance with the above provisions will be paid the Purchase Price therefor on the Effective Date, and if such Purchase Price is paid, such registered owner shall have no further rights with respect to said Bonds. Registered owners of Auction Rate Bonds subject to mandatory tender for purchase upon a Change in the Interest Rate Mode shall have no right to retain such Bonds and shall be required to tender such Auction Rate Bonds on the date established for the mandatory tender for purchase thereof. Upon the occurrence of any Terminating Event with respect to the Bonds, the Bonds shall be subject to mandatory tender for purchase at the Purchase Price on a Business Day selected by the Trustee; provided, however, that such mandatory tender shall not occur later than the 5th day after the receipt of notice thereof by the Trustee, and such mandatory tender date shall be a Business Day. The Bonds will not be subject to such mandatory tender for purchase during any Auction Rate Period or any Fixed Rate Period. During any Weekly Rate Period, the Bonds shall be subject to redemption on any Business Day, as a whole or in part, at the principal amount thereof, plus accrued and unpaid interest to the date fixed for redemption, if any. During any Daily Rate Period, the Bonds shall be subject to redemption on any Business Day, as a whole or in part, at the principal amount thereof, plus accrued and unpaid interest to the date fixed for redemption, if any.

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The rights and remedies of the bondholders and of the trustee and provisions for protecting and enforcing them, including limitations on rights of individual bondholders. Two special features of some bonds are convertibility and whether a bond is callable. When a bond is callable, it means the bond can be redeemed at par or face value, prior to the maturity date.

Once the period specified in the call protection passes, the bond issuer is permitted to exercise its right to call on certain call dates specified by the trust indenture. The trust indenture also specifies the call premium, i.e the price that the issuer of the bond is liable to pay to repurchase the bond. Another characteristic that is common to most trust indentures is the inclusion of subordination clauses that restrict the amount of additional debt that the issuer can incur.

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On top of that, it also makes the agreement between them legally enforceable. In most cases, both parties agree to the contract through the issuance process. The transfer of the Bonds may be registered only upon the books of registry required to be kept pursuant to the Indenture upon surrender thereof to the Registrar and Paying Agent, together with an assignment duly executed by the Holder thereof or his or her duly authorized agent and accompanied by a guarantee of signature, each in such form as shall be satisfactory to the Registrar and Paying Agent. Upon any such registration of transfer the Authority shall execute and the Trustee shall authenticate and deliver in exchange for such Bonds a new Bond or Bonds of the same subseries registered in the name of the transferee or transferees for a like aggregate principal amount, of any denomination or denominations authorized by this Indenture. No transfer of any Bond shall be effective until entered on the books of registry.

bond indenture agreement

If the organization breaks one of these covenants it may see a drop in its credit rating, which would result in decreased investor interest and likely an increase in the cost of borrowing money in the future. How and when Brian can expect repayment of his investment is detailed in the indenture agreement. Repayment is the maturity date along with the amount paid at maturity and it is a key piece of information. Investors want to know if and when the bond pays out interest, or if the bond is purchased at a below face value price so that all the profit is made at maturity.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holders any plan of reorganization, arrangement, adjustment or composition of the Authority or the Company affecting the Bonds or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holders in any such proceeding. In the event of any such reorganization, arrangement, adjustment, composition or liquidation, the Credit Facility Issuer shall have the right to vote on behalf of all Holders who hold such Bonds unless a Support Facility Issuer Default has occurred and is continuing. The Indexing Agent will perform the duties provided for in Section 3.01. Whenever the Indexing Agent makes a computation under that Section, it will promptly notify the Trustee, the Registrar and Paying Agent, the Authority, the Remarketing Agent , and the Company of the results and date of computation.

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Effect of Saturdays, Sundays and Non-Business Days129 Section 17.06. If you still have questions or prefer to get help directly from an agent, please submit a request. This video presents an in-depth overview of I bonds and how to maximize your investment with I bonds. Try it now It only takes a few minutes to setup and you can cancel any time.

bond indenture agreement

In the event of a Change in the Interest Rate Mode to an Auction Rate, the Authority, at the request of the Company, shall determine the length of the initial Auction Period and may change the length of a single or the Standard Auction Period by means of a written notice delivered on or prior to the effective date of such Change in the Interest Rate Mode to an Auction Rate to the Trustee, the applicable Market Agent, the Auction Agent and the Credit Facility Issuer. Notwithstanding anything to the contrary in paragraphs 1 and 2 of this Section 3.04, the determination of the initial Auction Period shall take effect on the effective date of such Change in the Interest Rate Mode to an Auction Rate. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which the New York Stock Exchange or banks are authorized or obligated by law or executive order to close in New York, New York, or any city in which is located the principal corporate trust office of the Trustee or the office of an issuer of a Support Facility at which demands for a draw on, or borrowing or payment under, the Support Facility will be made. It is essential for business owners to understand a trust indenture because they may be required to sign one when borrowing money through commercial paper loans or other types of debt instruments. Therefore, a bond trust indenture is a critical way to outline the rights and responsibilities of both parties as they enter into a contract.

Usually, they may involve increasing the interest rate, penalties, reduction in maturity period. The default clause protects the bondholders against any possible issues with issuers failing to repay. Upon delivery of this notice to the registered owners of the Bonds, the Bonds are subject to mandatory tender on the Effective Date at a purchase price equal to the principal amount thereof [plus premium in the amount of [] (the “Purchase Price”). Accrued interest on the Bonds is anticipated to be paid separately in accordance with Section 9.03 of the Indenture. In the event the interest is not so paid, the Purchase Price shall include an amount equal to the accrued and unpaid interest. Any such judgment shall be recovered by the Trustee, in its own name and as trustee of an express trust. For purposes of this definition, the “interest equivalent” of a rate stated on a discount basis (a “discount rate”) for commercial paper of a given day’s maturity shall be equal to the product of 100 times the quotient (rounded upwards to the next higher one-thousandth (.001) of 1%) of the discount rate divided by the difference between 1.00 and a fraction the numerator of which shall be the product of the discount rate times the number of days in which such commercial paper matures and the denominator of which shall be 360.

Everything You Need To Know About Bond Indenture Agreements

Change in interest rate is normally covered by the indenture document. So, the investor may lose the opportunity in case of an increase in interest in the future. Since the indenture document is legally valid, https://accounting-services.net/ disputes can be managed by taking this document as evidence. Calculation formulas to demonstrate that the issuer is satisfying the covenants. A collection of financial covenants that the issuer must adhere to.

A bond violation is a breach of the terms of a surety agreement where one party causes damage to the other. In a credit offering, a closed-end indenture clause may be used to detail any collateral involved that provides backing for the offering. Closed-end indentures include collateral as well as provisions that ensure the collateral may only be assigned to one specific offering. Currency Exchange Risk Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency. American Heritage® Dictionary of the English Language, Fifth Edition.

Who Helps With Bond Trust Indentures?

A bond indenture serves as a contract between an issuer and a trustee appointed to protect bondholders. A municipality is not required by law to have a bond indenture; however, a bond bond indenture agreement indenture provides a better protection to investors. A bond indenture; also called a protective covenant, contains the priority of payments to be made by a facility’s revenues.

Under the provisions of Section 1864 of the Act, the State of New York may, upon furnishing sufficient funds therefor, require the Authority to redeem, prior to maturity, as a whole, the Bonds on any Interest Payment Date not less than twenty years after their date of original issuance at a redemption price of 105% of their face value and accrued interest or at such lesser redemption price as may be applicable to an optional redemption at that time. Upon any such registration of transfer the Authority shall execute and the Trustee shall authenticate and deliver in exchange for such Bonds a new Bond or Bonds of the same subseries registered in the name of the transferee or transferees for a like aggregate principal amount, of any denomination or denominations authorized by the Indenture. Under the provisions of Section 1864 of the Act, the State of New York may, upon furnishing sufficient funds therefor, require the Authority to redeem, prior to maturity, as a whole, the Bonds on any Interest Payment Date not less than twenty years after their date of original issuance at a redemption price of 105% of their face value and accrued interest or at such lesser redemption price as may be applicable provided for a redemption at that time. The payment of or on account of principal to or upon the order of the person in whose name the Bonds shall at the time be registered on said books of registry and the payment of interest to or upon the order of any person in whose name the Bonds shall at the time be registered on said books of registry, shall be valid and effectual fully to satisfy and discharge all liability hereunder or upon the Bonds to the extent of the sum or sums so paid. The Bond Fund and the accounts therein shall be held in the custody of the Trustee. All moneys required to be deposited with or paid to the Trustee under any provision of this Indenture shall be held by the Trustee in trust and applied only in accordance with the provisions of this Indenture and shall be trust funds for the purposes specified in this Indenture. Pending the preparation of definitive Bonds, interim receipts or certificates (herein referred to as “temporary Bonds”) may initially be issued, exchangeable for definitive Bonds when the latter are ready for delivery.

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