Module III· DCM — High Yield & HybridIntermediate
Question
What is a bond indenture, and what role does the trustee play?
Answer
Bond indenture
The legal contract governing a bond. It sets coupon, maturity, ranking, covenants, default events, call terms, reporting obligations, and bondholder rights.
Trustee role
The trustee acts on behalf of bondholders in administering the bond documentation.
Tasks include
- Monitoring covenant mechanics and notices
- Communicating with bondholders
- Acting after default events
- Coordinating acceleration or enforcement if instructed
- Supporting restructuring voting processes
Practical point
Trustees are usually reactive. They often need instructions from a required percentage of bondholders before taking aggressive action.
Pitch tip
In distress, understanding trustee mechanics and bondholder voting thresholds can be as important as the economics.