What Is an Indenture?

Inden♚ture refers to a legal and binding agreement, ﷽contract, or document between two or more parties. Traditionally, these documents featured indented sides or perforated edges.

Historically, indenture has also referred to a contract binding one person to work for another for a set period of time (澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:bankruptcies.

Indenture Explained

Indenture is a term that originated in England. In the U.S., there can be several types of indentures, all typically involved with debt agreements, 澳洲幸运5官方开奖结果体彩网:real estate, or bankruptcy.

Types of Indentures

Below ℱare some🌃 of the common types of indentures and clauses that may be associated with indenture contracts.

Real Estate Indenture

In real estate, an indenture is a deed in which two parties agree to con🙈tinuing obligations. For example, one party may agree to maintain a property and the other may agree to make payments on it.

Bankruptcy Indenture

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.

Credit Indentures

A credit indenture is the underlying contract agreement that details all of the provisions and clauses associated with a credit offering. In unsecured, uncollateralized bond offerings, these indentures can also be called 澳洲幸运5官方开奖结果体彩网:debentures.

Typically a credit indenture is used for the sake of bond issuers and 澳洲幸运5官方开奖结果体彩网:bondholders. It specifies the important features of a bond, such as its 澳洲幸运5官方开奖结果体彩网: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.

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 澳洲幸运5官方开奖结果体彩网: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 by𓆏 the covenants.

Other Common Credit Indenture Terms

In a credit offering, a 澳洲幸运5官方开奖结果体彩网:closed-end indenture clause may be used to detail any collateral involved that provides backing for the offering. Closed-end indentures include collateral as well as provisions 🐼that ensure🉐 the collateral may only be assigned to one specific offering.

Other terms that may also be associated with credit indenture clauses can include open-end indenture, 澳洲幸运5官方开奖结果体彩网:subordinated, callable, convertible, and non-convertible.

In some credit indentures, a trustee may be hired by a bond issuer. When a trustee is involved, a 澳洲幸运5官方开奖结果体彩网:trust indenture will also be needed. A trust indenture is 𝕴similar to a bond inden🦩ture, except it also details the trustee’s responsibilities in overseeing all of a bond issue’s terms.

An indenture trustee handles fiduciary duties related to credit issuance. These professionals monitor interest pa🅘yments, redemptions, and investor communications. They may also lead trust departments at institutions. Essentially, their role is to oversee and administer all o𝔉f the terms, clauses, and covenants of an indenture issued by a company or government agency.