--%>

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 : 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

  • Q : NPV and Other Investment Criteria The

    The XYZ Manufacturing Company is considering the below investment proposal. The initial investment is $100,000. It was an expected economic life of 10 years. The net cash flow in the initial year is expected to be $25,000 and annual net cash flow is expected to develo

  • Q : Who explain match theoretical & market

    Who demonstrated that how to match theoretical and market prices for normal bonds?

  • Q : Problem on annual obligation payment

    ABC Corp. has a challenge: The CEO wants to set aside annual, end of year payments into a sinking fund account earning 5% over the next 6 years in order to retire $25 million in bonds that will be outstanding at that time. Determine the annual payment required each ye

  • Q : Problem on Bank branch networks While

    While banks across the United States and Europe are cutting down their number of branches, the number of bank branches in Hong Kong has increased in the same period. Hong Kong Monetary Authority statistics show the number of bank branches in Hong Kong at the end of 20

  • Q : What is Regular meeting of day-to-day

    Regular meeting of day-to-day commitments: The estimation of WCR also helps to ensure that there is positive WC existence. This proves helpful in meeting requirements which are regular in nature such as payments of salaries, wages, rental charges etc.

  • Q : Calculating Beta when market

    A company with a market capitalization of $100 million has no debt and a beta of 0.8. What will its beta be after it borrows $50 million (giving that there are no other changes and no taxes)?

  • Q : Calculated betas when they give

    Calculated betas give different information if they are acquired by using weekly, monthly or daily data.

  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

  • Q : Illustrates the Gordon and Shapiro

    What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?