Indenture

Definition

A formal legal agreement, contract, or document between two parties, typically used in the issuance of bonds. It specifies the terms and conditions under which the bond is issued and obligations of both issuer and bondholder.

5 Must Know Facts For Your Next Test

1. An indenture outlines key terms such as interest rate, maturity date, and covenants.
2. Trustees are often appointed in an indenture to act on behalf of bondholders.
3. Protective covenants in an indenture can limit certain actions by the issuer to protect bondholders' interests.
4. Indentures help ensure transparency and set clear guidelines for financial transactions in the bond market.
5. Breach of indenture terms can lead to default, triggering remedial actions defined in the document.

Review Questions

• What key elements are included in an indenture?
• Why are trustees important in an indenture agreement?
• How do protective covenants within an indenture benefit bondholders?

Related terms

Bond Covenant: A legally binding term of a financial contract, often found in debt agreements like bonds.

Default:

The failure to meet the legal obligations or conditions of a loan agreement.

Trustee: An entity or person with fiduciary responsibility to act on behalf of another party, often seen managing trust agreements or overseeing compliance with an indenture.