--%>

Explain Indenture

Explain the term Indenture and also describe their provisions?

E

Expert

Verified

The Indenture is a written agreement among issuer and creditors detailing words of borrowing. (As well act of trust). The indenture comprises the given provisions:

A) Bond terms:

Registered form – the ownership is recorded, payment prepared directly to owner
Bearer form – payment is prepared to holder (that is, bearer) of bond

B) Total face amount of bonds issued

C) The explanation of any property employed as security

•    Collateral – firmly speaking, pledged securities
•    Mortgage securities – protected by mortgage on genuine property
•    Debenture – an un protected debt with 10 or more years to the maturity
•    Note – a debenture with ten years or less maturity
•    Seniority – order of priority of claims

D) Subordinated debenture – of lower priority than the senior debt

E) The repayment arrangements:
Sinking fund – an account administered by the bond trustee for early on redemption

F) Any call provisions:

•    Call provision – Permits Company to “call” or re-purchase part or whole of issue
•    Call premium – amount by which the call price surpasses the par value
•    Deferred call – firm can’t call bonds for a designated period
•    Call protected – the explanation of a bond throughout the period it cannot be called

G) Any protective covenants:
•    Protective covenants – indenture conditions which restrict the actions of firms
•    Negative covenant – “thou shalt not” sell major assets, and so on.
•    Positive covenant – “thou shalt” keep working capital at or on top of $X, and so on.

   Related Questions in Corporate Finance

  • Q : Explain market efficiency hypothesis

    According to what I read inside a book, market efficiency hypothesis means that the expected average value of variations is zero in the shares price. Thus, the best estimate of the future price of a share is its price now, as this incorporates all the available inform

  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

  • Q : Overview of capital market efficiency

    Provide a brief overview of Capital Market Efficiency?

  • Q : Earnings management What do you mean by

    What do you mean by Earnings management and what are their actions and activities?

  • Q : Is the price of futures the excellent

    Is the price of futures the excellent estimate of €/$ exchange rate?

  • Q : Explain exotic option-value of option

    Explain exotic option’s value of option pricing method.

  • Q : Types of lease contracts What are the

    What are the types of lease contracts which are seen in practice?

  • Q : Abnormal profits based on fundamental

    If it is possible to make abnormal profits based on fundamental analysis, you can conclude that the market is: A) Not weak-form efficientB) Weak-form efficientC) Not semi-strong-form efficientD) Semi-strong-form e

  • Q : Define Capital Projects Capital

    Capital Projects: It is a long-term investment made in order to build on, add or enhance on a capital-intensive project. A capital project is any undertaking that requires the usage of notable amounts of capital, together with financial and labor, to

  • Q : Problem on Yield to maturity Shawna

    Shawna desires to invest her recent bonus in a 4-year bond which pays a coupon of 11 % semi-annually. The bonds are selling at $962.13 nowadays. When she buys such bond and holds it to the maturity, what would be her yield? (Round to the nearest answer.) (i) 11.5%&nbs