Question

Question: What is a bond indenture? What provisions are usually included in it?

Short answer

Answer

Bond indenture is a legal commitment between the company that issues bonds and the bondholders. The provisions included are:

1. Name of the issuer
2. References the features
3. Includes the necessary information

Step-by-step solution

Bond indenture

The legal document describing the rights and obligations of both the bondholders and the issuer is called the bond indenture

Following provisions are usually included in the bond indenture

1. The indenture is written in the name of the issuer.
2. References the features of the bond issue, such as the principal value for each bond, the interest rate or coupon rate to be paid, the dates when will the interest payments made, the maturity date when the company will repay the bonds, and whether the bond issue comes with any contingency provisions.
3. Alsoincludes informationregarding the company's funding sources for the interest payments and principal repayments, and it specify any credit enhancements or covenants.