Bond Indenture

A bond certificate provides the holder with basic information relative to the bond such as the bonds issuer, the face amount of the bond, its maturity and its interest rate. However, it is the bond indenture (the master loan agreement) underlying the bond, which is the actual legal document that contains all of the information for the issue. Generally, the bond indenture contains information such as:

• The exact legal name of the issuer
• The total amount of the bond issue
• The coupon (interest) rate
• How often interest will be paid on the bond
• The maturity date of the bond
• The call provision, if any, associated with the issue
• The refunding provision, if any, associated with the issue
• The sinking-fund provision, if any, associated with the issue
• The put option, if any, associated with the bond
• Any security underlying the bond

The issuer is required to meet all the terms and conditions of the indenture. Consequently, either you, as an investor or your stockbroker/investment adviser should be familiar with all of the material terms of the indenture. A failure to meet any of the terms of the indenture can result in the issuer being in default. If the default is not cured, legal proceeding may ensue, which is never beneficial for the investor.

Please keep in mind that the above information is being provided for informational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.

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