What is a bond indenture and what sorts of things are found in the indenture?

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Expert Solution

The bond indenture is a contract associated with a bond i.e., a core legal document which is referenced by bond issuer & investors in case of dispute regarding bonds.

Therefore, an indenture will include following clauses:

Description of bond features.

Purpose. Reason of issuance

Interest rate. Interest rate stated on face of bond.

Interest calculation. Formula to calculate interest to be paid.

Payment dates. Dates when payments will be made.

Maturity date. Maturity date of bond, when face amount of bond will be paid.

Call features. Rights of issuer to buy back bonds before maturity date.

Conversion features. Circumstances under which bonds could be converted into common stock, and at what multiple.

Covenants or Restrictions/Mandatory Actions placed on issuer. List of covenants to which issuer will be subjected till the time bonds are outstanding, & how covenants are calculated.

Non-payment actions. Actions triggered if issuer fails to make timely payments

jeff jeffy answered 1 year ago

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