Mai
Nguyen
Dawn of Finance
2
2) Bond indenture/ Trust deed (Los 42.b, 42.c)
Trust deed/ Bond indenture (in the US & Canada) (hợp đồng)
o is the legal contract between the bond issuer (borrower) and bondholders (lenders)
o defines the obligations of and restrictions on the borrower
o forms the basis for all future transactions between the bondholder and the issuer.
Covenants (điều khoản) the provisions in the bond indenture
Negative/ Restrictive covenants
Affirmative covenants
prohibitions on the borrower
limit what a company can do
actions the borrower promises to
perform specify what a company
is obliged to do
Eg:
restrictions on asset sales (the company can't sell assets that
have been pledged as collateral),
negative pledge of collateral (the company can't claim that
the same assets back several debt issues simultaneously)
restrictions on additional borrowings (the company can't
borrow additional money unless certain financial conditions
are met)
restrictions on dividend payout ratio (Eg: not to exceed 25%)
Eg:
make timely interest and
principal payments to
bondholders
insure and maintain assets
comply with
applicable laws
and regulations
maintain a ratio of
debt/EBITDA (Eg:
≤ 4.0)
serve to protect the interests of bondholders and prevent the
issuing firm from taking actions that would
increase the risk
of default
however, must not be so restrictive that they prevent the firm
from taking advantage of opportunities that arise or
responding appropriately to changing business circumstances.
not typically restrict the operating
decisions of the issuer
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