Indenture meaning

Introduction High yield bonds sit within securities regulation and, save for a few narrow carve-outs, are subject to New York law irrespective of the issuer’s domicile. They are brought to market under an indenture, which also provides for the appointment of a trustee to act for the bondholders. For further detail on the high yield product, see Practice Notes: Introductory guide to high yield bonds and High yield debt in 11 jurisdictions worldwide. For a snapshot of the principal deal papers needed for a high yield issuance, see Checklist: Issuing high yield bonds-documents list. Beyond setting out the issuer’s key covenants, the indenture includes provisions required to administer the bonds and to enable the bond trustee to discharge its duties. The trustee’s core role is to handle administrative matters for bondholders before any default and, where appropriate, to pursue enforcement on their behalf. For commentary on material terms and covenants in high yield, see: Introductory guide to high yield bonds-High yield bond terms and Practice Note: Covenants and other...

Who are bondholders? Bondholders, sometimes referred to as noteholders, have typically put capital into a company’s most junior—and therefore risky—debt. In a distressed scenario, they will often form a pressure group, coming together to seek recovery from a restructuring by presenting a unified position to the debtor’s advisers and other stakeholders, including senior lenders, as a collective. For further reading, see Practice Note: Bonds and notes. Bondholders will frequently sit within a complex capital structure. The bondholders’ committee The bondholders’ committee is usually organised by the indenture trustee for the bonds or by a lawyer specialising in representing the interests of junior creditors. The committee can also be known as the: steering committee co-ordinating committee A committee is formed as part of a restructuring process rather than as a formal insolvency process. The formation of the committee...

This Practice Note outlines guidance on identifying and engaging with bondholders in the context of a restructuring. For broader background on debt securities, see the following Practice Notes: Key features of the debt capital markets Bonds and notes Issuing debt securities—key documentation Parties in an issue of debt securities For materials focused on restructuring where debt securities are involved, refer to these Practice Notes: Guide to representing bondholders in a restructuring Liability management of bonds Enforcement of debt securities Why keep in touch with bondholders? Traditionally, issuers of bonds have not maintained regular dialogue with their bondholders, with communications largely confined to moments when action was required from debt holders, most often linked to a corporate action. Such contact commonly took the form of a notice released or circulated by the issuer, frequently via a bond trustee. The trustee is a financial institution vested with trust powers—for example, a commercial bank or...

The key United States (US) regulators and regulations that govern structured products and securitisations issued outside the US are summarised below. Regulatory bodies Securities and Exchange Commission (SEC) The SEC, a federal agency, is responsible for the principal US securities laws: the Securities Exchange Act of 1934, the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Companies Act of 1940, the Investment Advisers Act of 1940 and the Sarbanes-Oxley Act of 2002. Established by the 1934 Act after the 1929 Wall Street crash, it regulates securities markets and stock exchanges, can bring civil actions for breaches of its rules, and may pursue criminal prosecutions alongside law enforcement agencies. Commodity Futures Trading Commission (CFTC) The CFTC, an independent federal agency, regulates futures and option markets. Its role is to protect market users and the public from fraud, manipulation and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive and financially sound futures and...