What is a 'Trust Indenture'

A trust indenture is an agreement in the bond contract made between a bond issuer and a trustee that represents the bondholder's interests by highlighting the rules and responsibilities that each party must adhere to. It may also indicate where the income stream for the bond is derived from.

Trust indentures may not be included in every bond contract, as some government bonds disclose similar information (the duties and rights of the issuer and bondholders) in a document called the bond resolution.

BREAKING DOWN 'Trust Indenture'

One section of the trust indenture dictates the circumstances and processes surrounding a default. A bondholder should be aware of these situations because understanding the proper sequence of events will allow them to take the proper course of action if a default occurs.

The section on the trustee's role is important as well, as it gives a clear indication of how unforeseen incidents will be dealt with. For example, if a conflict of interest comes up involving the trustee's role as a fiduciary, in certain trust indentures, the issue must be resolved within 90 days, otherwise a new trustee will be necessary.

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