bond-basics

Trustee

A commercial bank, trust company, or other financial institution with trust powers which acts in a fiduciary capacity for and on behalf of the bondholders by entering into an Indenture with the Issuer of the Bonds.

The Trustee holds the Bond proceeds, repayment funds and any reserves in trust for the bondholders during the term of the Bonds.  The Trustee is typically paid an annual fee for its services.  Before the Closing, the Trustee establishes all funds and accounts necessary under the Indenture and makes arrangements for any investment of funds and money transfers at the Closing. After the Closing, the Trustee manages the funds and accounts, including the Flow of Funds between accounts, to the extent provided in the Indenture and any investment instructions. 

In the Event of a Default on the Bonds, the Trustee acts on behalf of and in the best interests of the bondholders.  The Trustee also becomes involved in processing any Bond Redemptions. The Trustee, the Issuer and the bondholders are involved with the Bonds as long as any Bonds are outstanding. It is common for Bonds to have a maturity of up to thirty years, but there are Bonds that have been issued with a 100-year maturity and everything in between. Therefore, all instructions to the Trustee in the Bond documents are written so that the requirements can be carried out until the final Maturity Date. Many Conduit Financings have both a Bond Trustee and a Master Trustee. The Bond Trustee administers the funds and accounts created by the Bond Indenture or Bond Resolution, and the Master Trustee administers the funds and accounts created by the Master Indenture.

Life’s a Party

Learn more about the various parties involved in a municipal securities transaction and their roles.


Related

  • Reports and Resources

Form Conduit Indenture (2nd Edition)

The second edition of NABL’s sample form conduit indenture and accompanying commentary.


See Also

Indenture or Trust Indenture/Agreement

A contract between an issuer and a trustee under which the issuer issues bonds and specifies their maturities, interest rates, redemption provisions, form, exchange provisions, security and other terms.

Bond Trustee

A trustee specifically acting in such capacity with respect to an indenture or trust indenture/agreement.

Master Trustee

A trustee specifically acting in such capacity with respect to a master (trust) indenture.

Trustee’s Counsel

An attorney or firm of attorneys engaged to serve as counsel to the trustee.

Hudson Yards Rail Yards

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Yield

As computed under the Code provisions applicable to bonds, the internal rate of return that causes the present value of the payments of principal and interest (and, in certain cases, certain other payments) on an issue of bonds to equal the issue price of the bonds.