Indenture clause: Copy, customize, and use instantly
Introduction
An indenture clause governs the terms and conditions of a formal agreement, often used in financial transactions such as bond issuances or trust arrangements. It sets out the rights, obligations, and protections for parties involved, including issuers, trustees, and bondholders, ensuring transparency and compliance with agreed-upon terms.
Below are templates for indenture clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Payment obligations under indenture
This variation outlines the issuer's obligation to make timely payments of principal and interest to bondholders.
The issuer agrees to pay the principal amount, accrued interest, and any other amounts due under the terms of this indenture on the specified payment dates, without delay or deduction, as outlined in the attached schedule of payments.
Trustee's role and duties
This variation specifies the trustee’s responsibilities in managing the indenture agreement.
The trustee shall act in the best interests of the bondholders, overseeing compliance with the terms of this indenture, collecting payments, and ensuring the distribution of funds to bondholders as required by this Agreement.
Bondholder rights and protections
This variation establishes the rights and protections afforded to bondholders under the indenture.
Bondholders are entitled to full payment of principal and interest as outlined in this indenture, as well as the right to initiate enforcement actions against the issuer in the event of default or breach of the terms.
Events of default
This variation defines what constitutes a default under the indenture and the resulting consequences.
An event of default occurs if the issuer fails to make any payment when due, breaches any material term of this indenture, or becomes insolvent. Upon default, the trustee may take action, including accelerating the maturity of the bonds and pursuing legal remedies on behalf of the bondholders.
Remedies for breach of indenture
This variation specifies the remedies available in case of a breach of the indenture terms.
In the event of a breach of this indenture, the trustee may enforce the terms through legal action, including the appointment of a receiver, foreclosure of collateral, or any other remedy permissible under applicable law to protect the interests of bondholders.
Redemption provisions
This variation outlines the terms under which the issuer may redeem the bonds before maturity.
The issuer reserves the right to redeem all or part of the bonds prior to maturity, subject to the terms and conditions specified in this indenture, including providing a minimum of 30 days’ notice and payment of any applicable redemption premium.
Reporting and disclosures
This variation requires the issuer to provide regular reports and disclosures to bondholders.
The issuer agrees to provide periodic financial reports, including audited financial statements and disclosures regarding any material changes in its business operations, in accordance with the reporting requirements set forth in this indenture.
Transferability of bonds
This variation governs the conditions under which bonds issued under the indenture may be transferred.
Bonds issued under this indenture are transferable only upon proper endorsement and registration in accordance with the procedures specified herein, subject to applicable laws and restrictions.
Priority of payments
This variation defines the payment hierarchy in the event of limited funds.
Payments under this indenture shall be distributed in the following order of priority: (1) costs and expenses incurred by the trustee, (2) accrued interest due to bondholders, and (3) repayment of principal amounts owed.
Collateral and security
This variation outlines the use of collateral as security for the bonds issued under the indenture.
The issuer grants a first-priority security interest in the collateral specified in this indenture as security for the repayment of the bonds, with the trustee holding the collateral for the benefit of the bondholders.
Amendment and waiver provisions
This variation specifies the process for amending the indenture or waiving certain provisions.
This indenture may be amended or specific provisions waived only with the written consent of the issuer, the trustee, and a majority of bondholders holding at least 66 2/3% of the outstanding principal amount of the bonds.
Governing law and jurisdiction
This variation establishes the governing law and jurisdiction for resolving disputes under the indenture.
This indenture shall be governed by and construed in accordance with the laws of [State/Country], and any disputes arising under this indenture shall be subject to the exclusive jurisdiction of the courts located in [City, State/Country].
Trustee indemnification
This variation provides indemnification for the trustee against certain liabilities.
The issuer agrees to indemnify and hold the trustee harmless from any claims, liabilities, or expenses incurred in connection with the performance of its duties under this indenture, except where such claims arise from the trustee’s gross negligence or willful misconduct.
Successor trustee provisions
This variation specifies the process for appointing a successor trustee if the current trustee resigns or is removed.
If the trustee resigns or is removed, the issuer shall appoint a successor trustee acceptable to the bondholders, and the outgoing trustee shall transfer all records and assets held under this indenture to the successor trustee without undue delay.
Force majeure clause
This variation addresses the impact of unforeseen events on the performance of obligations under the indenture.
Neither the issuer nor the trustee shall be liable for delays or failures to perform their obligations under this indenture due to events beyond their reasonable control, including acts of God, war, or government actions, provided that prompt notice is given to the other parties.
Allocation of expenses
This variation defines how costs and expenses related to the administration of the indenture will be allocated.
All reasonable costs and expenses incurred in the administration of this indenture, including trustee fees and legal expenses, shall be borne by the issuer, unless otherwise agreed in writing by the parties.
No third-party beneficiary rights
This variation clarifies that the indenture does not create rights for parties other than the issuer, trustee, and bondholders.
This indenture is intended solely for the benefit of the issuer, trustee, and bondholders, and no other party shall have any rights, claims, or remedies under this indenture.
Non-recourse provisions
This variation limits bondholders’ claims to the assets securing the indenture and prevents personal liability for the issuer.
Bondholders’ claims under this indenture shall be limited to the collateral securing the bonds, and no individual officer, director, or employee of the issuer shall have personal liability for any obligations arising under this indenture.
Arbitration of disputes
This variation provides for arbitration as the method for resolving disputes under the indenture.
Any dispute arising under this indenture shall be resolved through binding arbitration conducted in accordance with the rules of [Arbitration Organization], with the arbitrator’s decision being final and enforceable in any court of competent jurisdiction.
Indenture for periodic payment terms
This variation specifies the issuer’s obligation to make periodic payments as agreed under the indenture.
The issuer agrees to make periodic payments of principal and interest on the bonds as outlined in the payment schedule attached to this indenture, with payments due on the first business day of each calendar quarter.
Indenture for default interest rate
This variation outlines the interest rate applicable in the event of default by the issuer.
In the event of default by the issuer, an interest rate of [X]% per annum above the agreed-upon rate shall apply to all outstanding principal amounts until the default is remedied.
Indenture for trustee resignation terms
This variation governs the procedure if the trustee wishes to resign.
The trustee may resign at any time by providing 90 days’ written notice to the issuer and bondholders, during which a successor trustee must be appointed in accordance with this indenture.
Indenture for withholding tax obligations
This variation addresses withholding tax responsibilities under the indenture.
The issuer agrees to be responsible for all withholding tax obligations arising under this indenture and shall gross up payments to bondholders to ensure they receive the full amount owed, net of any required withholding taxes.
Indenture for issuer reporting of material changes
This variation obligates the issuer to report any material changes to its business or operations.
The issuer agrees to notify the trustee and bondholders within 10 business days of any material changes to its financial condition, corporate structure, or business operations that could affect its ability to meet obligations under this indenture.
Indenture for early repayment penalty
This variation defines the penalty for early repayment of bonds by the issuer.
If the issuer elects to repay bonds prior to their maturity date, a penalty of [X]% of the outstanding principal amount shall be paid to bondholders in addition to the principal and accrued interest.
Indenture for pari passu ranking
This variation ensures equal treatment of bondholders with other unsecured creditors.
The bonds issued under this indenture shall rank pari passu with all other unsecured and unsubordinated obligations of the issuer, ensuring equal priority of repayment.
Indenture for cross-default provisions
This variation links defaults under the indenture to defaults in other agreements.
An event of default under this indenture shall be deemed to occur if the issuer defaults under any other agreement involving indebtedness exceeding [X amount], provided that such default remains uncured for more than 30 days.
Indenture for bondholder meeting requirements
This variation governs the convening and conduct of bondholder meetings.
The trustee shall convene a meeting of bondholders upon receiving a written request from bondholders holding at least 25% of the outstanding principal amount of the bonds, with resolutions requiring a two-thirds majority vote for approval.
Indenture for legal compliance obligations
This variation requires the issuer to ensure compliance with applicable laws and regulations.
The issuer agrees to comply with all applicable laws and regulations relevant to the issuance and performance of bonds under this indenture, including securities laws and financial reporting requirements.
Indenture for collateral substitution
This variation allows the issuer to substitute collateral with trustee approval.
The issuer may substitute collateral securing the bonds under this indenture, provided that the substituted collateral is of equal or greater value and subject to the trustee’s written consent.
Indenture for bondholder rights to audit
This variation provides bondholders with the right to audit the issuer’s financial records.
Bondholders holding at least 10% of the outstanding principal amount of the bonds may request an independent audit of the issuer’s financial records, with the costs of such audit to be borne by the issuer.
Indenture for sinking fund requirements
This variation requires the issuer to establish a sinking fund for bond repayment.
The issuer agrees to establish and maintain a sinking fund into which periodic deposits shall be made to ensure the repayment of bonds upon maturity, as specified in this indenture.
Indenture for event of insolvency
This variation addresses the issuer’s obligations in the event of insolvency.
In the event of the issuer’s insolvency, the trustee shall take possession of all pledged collateral and liquidate it to repay bondholders in accordance with the terms of this indenture.
Indenture for force majeure impact on obligations
This variation provides for suspension of obligations due to force majeure events.
The issuer’s obligations under this indenture may be temporarily suspended in the event of a force majeure, provided that the issuer notifies the trustee and bondholders within five business days of the occurrence and takes all reasonable steps to resume performance.
Indenture for trustee replacement process
This variation specifies the process for replacing a trustee who is unable or unwilling to act.
If the trustee is unable or unwilling to act, the issuer shall appoint a successor trustee within 60 days, subject to the approval of bondholders holding at least a majority of the outstanding principal amount of the bonds.
Indenture for post-default allocation of recoveries
This variation governs the distribution of recoveries after an event of default.
All recoveries collected by the trustee following an event of default shall be distributed to bondholders on a pro-rata basis, after deducting trustee fees, legal expenses, and other reasonable costs incurred in the recovery process.
Indenture for bondholder enforcement rights
This variation grants bondholders the right to enforce obligations under the indenture.
Bondholders holding at least 20% of the outstanding principal amount of the bonds may initiate legal proceedings to enforce the issuer’s obligations under this indenture if the trustee fails to act within 30 days of receiving a written request.
Indenture for no set-off rights
This variation prohibits bondholders from setting off obligations under the indenture.
Bondholders agree that their obligations to the issuer, if any, shall not be subject to any set-off, deduction, or counterclaim against amounts payable under the bonds issued pursuant to this indenture.
Indenture for interest calculation method
This variation defines how interest is calculated and applied under the indenture.
Interest on bonds issued under this indenture shall be calculated on an actual/360-day basis and applied to the outstanding principal amount at the end of each payment period.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.