BOND INDENTURE Meaning and
Definition
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A bond indenture is a legal document that outlines the terms and conditions of a bond. It serves as a contract between the issuer of the bond (typically a corporation or a government entity) and the bondholders. The indenture sets forth the rights and obligations of both parties involved in the bond agreement.
The bond indenture contains various important provisions and clauses that govern the bond issue. It typically includes details about the principal amount of the bond, the interest rate, and the maturity date. Additionally, it may include information about the repayment terms, call and put options, and any collateral or security that is pledged to protect the bondholders' interests.
One crucial aspect of a bond indenture is the covenants. These are specific promises made by the issuer to the bondholders regarding the management and operation of the company or entity. These covenants may include restrictions on the issuer's ability to take on additional debt or sell assets, requirements to maintain certain financial ratios, and provisions for events of default and remedies.
The bond indenture serves as a critical source of information for bondholders, providing them with a clear understanding of their rights and protections. It helps to ensure transparency and accountability between the issuer and the bondholders, fostering trust and confidence in the bond market.
Etymology of BOND INDENTURE
The word "bond indenture" has its etymology rooted in both the Middle English and Latin languages.
The term "bond" is derived from the Middle English word "bonde", which means a legal obligation or a duty. It is ultimately derived from the Old Norse word "böndi", meaning someone who dwells on and works the land.
The word "indenture" is derived from the Latin word "indentura", which signifies a written agreement or contract. It is derived from the Latin verb "indentare", which means "to make a jagged edge" or "to cut in".
In the context of finance and law, "bond indenture" refers to a written agreement between the issuer of a bond and the bondholders. This agreement outlines the terms and conditions of the bond, including the interest rate, maturity date, payment schedule, and any other provisions related to the bond.
