Closed-end indentures include collateral as well as provisions that ensure the collateral may only be assigned to one specific offering. In bankruptcy law, an indenture may be referenced as proof of a claim on property. Indentures in general provide details on collateralized property, constituting the claim a lender has against a debtor, usually secured with a lien on the debtor’s property.
- In the U.S., there can be several types of indentures, all typically involved with debt agreements, real estate, or bankruptcy.
- When the offering memorandum is prepared in advance of marketing a bond, the indenture will typically be summarised in the “description of notes” section.
- These professionals monitor interest payments, redemptions, and investor communications.
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 a bond covenant. The indenture is then scrutinized closely to make sure there is no ambiguity in calculating the financial ratios that determine whether the issuer is abiding by the covenants. Indenture refers to a legal and binding agreement, contract, or document between two or more parties. Traditionally, these documents featured indented sides or perforated edges.
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When the agreement was made before a court of law a tripartite indenture was made, with the third piece kept at the court. The term is used for any kind of deed executed by more than one party, in contrast to a deed poll which is made by one individual. In the case of bonds, the indenture shows the pledge, promises, representations and covenants of the issuing party.
These professionals monitor interest payments, redemptions, and investor communications. Essentially, their role is to oversee and administer all of the terms, clauses, and covenants of an indenture issued by a company or government agency. In real estate, an indenture is a deed in which two parties agree to continuing obligations. For example, one party may agree to maintain a property and the other may agree to make payments on it. In a credit offering, a closed-end indenture clause may be used to detail any collateral involved that provides backing for the offering.
A trust indenture is similar to a bond indenture, except it also details the trustee’s responsibilities in overseeing all of a bond issue’s terms. In the United States, public debt offerings in excess of $10 million require the use of an indenture of trust under the Trust Indenture Act of 1939. These two are in a regular contractual, arm’s length, non-fiduciary, non-equity relationship. Typically a credit indenture is used for the sake of bond issuers and bondholders.
Currently, indentures are used for some apprenticeship contracts in the U.S. For example, bond indentures are indentured trusts that delineate various interests when companies issue bonds in financing agreements. For example, a corporate indenture would be a deed describing terms and conditions for debt securities issuance. An indenture is a legal contract between two parties, particularly for indentured labour or a term of apprenticeship but also for certain land transactions.
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It specifies the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation, callability, and convertible features, if applicable. A bond indenture also contains all the terms and conditions applicable to the bond issue. Other critical information included in the indenture are the financial covenants that govern the issuer and the formulas for calculating whether the issuer is within the covenants (usually ratios based on corporate financials). Should a conflict arise between the issuer and bondholder, the indenture is the reference document utilized for conflict resolution.
What Is an Indenture?
These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘indenture.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. In the early history of the United States, many European immigrants served a period of indentured labour in order to pay the cost of their transportation. This practice was common during the 17th and 18th centuries, where over half of immigrants worked off an average of three years’ servitude. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.
Bond indenture (also trust indenture or deed of trust) is a legal document issued to lenders and describes key terms such as the interest rate, maturity date, convertibility, pledge, promises, representations, covenants, and other terms of the bond offering. When the offering memorandum is prepared in advance of marketing a bond, the indenture will typically be summarised in the “description of notes” section. In the U.S., there can be several types of indentures, all typically involved with debt agreements, real estate, or bankruptcy. Historically, indenture has also referred to a contract binding one person to work for another for a set period of time (indentured servant), particularly European immigrants. In modern-day finance, the word indenture most commonly appears in bond agreements, real estate deals, and some aspects of bankruptcies. An indenture trustee handles fiduciary duties related to credit issuance.
An indenture is a particular formal contract or deed made between two or more parties. Beginning in medieval England, an indenture can be defined as a specific agreement within a contract noted with a specific duration or significance. Indentures were initially used to convey land and for service contracts of seven years.