Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • Features of A Bond Issue

    Uploaded by

    Ansherina Laviña
    208 views8 pages
    A bond indenture is a legal document that outlines the rights of bondholders and the issuing corporation. It includes details of the bond terms such as principal amount, interest rate, and maturity date. The indenture establishes covenants that restrict certain actions by the issuer to protect bondholders, such as limiting dividend payouts or additional borrowing. A trustee, often a bank, represents bondholders and ensures the issuer complies with indenture terms.

    Original Description:

    Original Title

    Features of a Bond Issue.pptx

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    A bond indenture is a legal document that outlines the rights of bondholders and the issuing corporation. It includes details of the bond terms such as principal amount, interest rate, and maturity date. The indenture establishes covenants that restrict certain actions by the issuer to protect bondholders, such as limiting dividend payouts or additional borrowing. A trustee, often a bank, represents bondholders and ensures the issuer complies with indenture terms.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    208 views8 pages

    Features of A Bond Issue

    Uploaded by

    Ansherina Laviña
    A bond indenture is a legal document that outlines the rights of bondholders and the issuing corporation. It includes details of the bond terms such as principal amount, interest rate, and maturity date. The indenture establishes covenants that restrict certain actions by the issuer to protect bondholders, such as limiting dividend payouts or additional borrowing. A trustee, often a bank, represents bondholders and ensures the issuer complies with indenture terms.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 8

    Features of a Bond Issue

    1. A bond indenture or deed of trust is a


    detailed document which contains the essential
    information regarding the bond issued.
    2. A bond certificate which represent a
    portion of the total loan i used.
    3. If property is pledged as a security for the
    bond issue, a trustee who will hold the title to the
    property serving as the security is identified.
    4. A bank or trust company is appointed as
    the registrar or disbursing agent. The issuing firm
    deposits the interest and principal payments to
    the disbursing agents who will then distribute the
    funds to the bondholders.
    Bond Indentures
     The terms and conditions in a bond
    issuance are determined in the
    bond indenture which describes the
    features of the bond issuance. The
    bond indenture is sometimes called
    a deed of trust. A financial
    intermediary, normally a bank, acts
    as a trustee and represents the
    bondholders.
    A bond indenture is a legal document that
    contains the rights of the bondholders and
    the corporation. Some of the possible
    provisions in a bond indenture are as follows:

    1. details of the terms of the


    bonds issued
    2. covenants
    3. call provision
    4. conversion provision
    5. retirement provision
    6. sinking-fund provision
    Details of the Terms of the
    Bond Issued

    The following are the details of the terms of the


    bond issued:
    1. Nominal rate/Principal/Face amount of the
    bond issuance - is the agreement as regards
    the nominal rate to be used when
    computing the interest and principal to be
    paid on the maturity date.
    2. Issue price - is the price with which inventors
    can buy the bonds when they are first issued.
    3. Maturity date - is the date on which the
    issuer has to repay the nominal amount.
    Covenants
    Covenants are the part of bond
    indentures that restrict certain
    actions of the issuer, ex., incurring
    additional obligations.

    Two types of Covenants:


    1. Protective covenants
    2. Negative covenants
    Protective covenants state the
    actions or conditions which a
    company should do.
    Example:
    a. A specified working capital ratio or a
    specified level of working capital is a covenant that
    recognizes the importance of having a sound
    current position.
    b. The accounting records must be maintained
    in accordance with the International Accounting
    Standards and International Financial Reporting
    Standards. Financial statements must be timely
    audited and submitted to the trustee.
    c. The security used as the collateral must he
    maintained in good order and running condition.
    Negative covenants state the actions
    or conditions which a company
    should not do.
    Example:
    a. The acceleration clause states that if any of the
    conditions in the bond indentures is breached, the trustee
    may declare a default, causing the entire amount of the
    principal along with the interest that has accrued all due
    and demandable.
    b. A prohibition on making additional loans
    protects the bondholders from the risk of not being paid.
    c. By disallowing the collateral to be used in
    obtaining additional loans, existing bondholders are
    protected from the dilution of the asset coverage of the
    bond issue.
    d. A limitation on the amount of
    dividends which can be declared avoids
    excessive dividends from being distributed
    to the stockholders.
    e. A restriction on investing which
    reduces the cash in the company’s book
    and, therefore, increases the risk of non-
    payment, is also common.
    f. A restriction on merging with another
    company is also common because a
    merger may impair the rights of the
    bondholders.

    You might also like