What do you mean by bond documentation?
A legal document that outlines all of the conditions of a bond. Have fixed maturity dates (such as 20 years) at which time the borrower promises to repay the bondholder in full. Preferred stocks share characteristics with which of the following?
What are the documents in a bond transcript?
However, the sequence of the documents in a bond transcript depends entirely upon bond counsel. All bond transcripts contain the following categories of documents: Offering Documents. Preliminary Official Statement Official Statement Bond purchase agreement Blue sky survey. Basic Legal Documents.
What is a bond?
Basic Bond Characteristics A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value.
What is an example of a government issued bond?
Government Bonds. The following are examples of government-issued bonds, which typically offer a lower interest rate compared to corporate bonds. The reduced yield is attributed to the federal government’s ability to print money and collect tax revenue, which significantly lowers their chance of default.
What is an indenture for bond?
An indenture is a legal and binding contract usually associated with bond agreements, real estate, or bankruptcy. An indenture provides detailed information on terms, clauses, and covenants. There can be a few different types of indentures and many different types of indenture clauses.
What is considered a legal document?
legal document means any document affecting the legal rights of any person including, but not limited to, any deed, mortgage, will, trust instrument, contract or any document filed in any court, quasi-judicial or administrative tribunal.
What are indenture terms?
An indenture is a particular formal contract or deed made between two or more parties. Beginning in medieval England, an indenture can be defined as a specific agreement within a contract noted with a specific duration or significance.
What is the difference between a bond agreement and a bond indenture?
Bond agreements are typically issued by smaller companies. Bond agreements may be eligible for exemption from SEC registration requirements, which could present slightly more risk to you as an investor, without having the contractual agreement a bond indenture provides.
What is another word for legal document?
Synonymslegal instrument.official document.instrument.
What are the types of documents?
Types of documentsStructured text. Frequently asked questions and answers.Unstructured text. HTML files. Microsoft PowerPoint presentations. Microsoft Word documents. Plain text documents. PDFs.
Which of the following document defines the rights and obligations of bond holders?
a legal document specifying the rights and obligations of both the issuing firm and the bondholders. It is designed to address all matters related to the bond issue, such as collateral, and call provisions.
What is an indenture note?
A written agreement between the issuer of debt securities (such as bonds, notes, or debentures) and the trustee for the debt securities acting as a representative of the securityholders that specifies the terms and conditions of the debt securities, including the interest rate, maturity, any redemption terms, timing, ...
What is an indenture agreement quizlet?
What is an indenture agreement? a legal contract between the issuer and the bondholders.
Do all bonds have indenture?
The indenture, a copy of which must be filed with the Securities and Exchange Commission ( SEC ), is required by the Trust Indenture Act of 1939 for issues registered under the Security Act of 1933, which includes most corporate bonds, but not for issues for less than $5,000,000, municipal bonds, and bonds issued by ...
What are the rights and details listed in a bond indenture agreement?
Rights and details that are listed in the bond indenture agreement include: Ownership details. Right to receive interest payments. Right to receive principal payments. The interest rate or coupon rate. Dates when interest must be paid.
What is bond agreement?
A bond agreement is described as a contract used for privately placed debt. For securities or investment vehicles that are private (not sold to the general public), bond agreements are used when issued by smaller companies and sold to banks, savings and loan institutions, and brokerage firms.
What is bond indenture?
A bond indenture agreement is a contract or legal document that records the obligations of the bond issuer and the benefits that will be given to the bondholder. A bond indenture may also be called a bond resolution, a bond contract, or a deed of trust. A bond indenture is a contract that is blanket and unconditional.
What is bond indenture agreement?
The bond indenture agreement is a contract that outlines the promise made by the issuer, the terms of the bond, and the investor's rights. A bond indenture agreement includes: Maturity date. Coupon rate, which is the stated interest rate. Special features of the bond.
What are the characteristics of a bond?
Characteristics of bonds include: The length of time before bondholders receive payment of the principal amount of the bond is called maturity. The face value, or the par, of the bond, is the price the issuer sets when issued. The premium is the amount sold above par or face value.
Is an indenture agreement the same as a prospectus?
An indenture agreement is not the same as a prospectus, which is a summary description. The prospectus outlines the goals and structure of the bond company and is a legal and formal document.
Who is appointed to act on behalf of the bondholder?
Due to the technical nature of the indenture agreement, some situations benefit from a trustee appointed to act on behalf of the bondholder. The trustee is usually a large bank. The trustee will oversee that the bondholder is sure he or she is meeting important markers such as: Meeting the covenants.
What is bond issuer?
The bond issuer. Bond Issuers There are different types of bond issuers. These bond issuers create bonds to borrow funds from bondholders, to be repaid at maturity. borrows capital from the bondholder and makes fixed payments to them at a fixed (or variable) interest rate for a specified period.
What is an indenture bond?
An indenture is a binding contract between an issuer and bondholder that outlines the characteristics of the bond. It typically includes: Date of maturity. Interest payment dates. Whether it is convertible or callable (or neither) Terms and conditions.
Why are junk bonds so attractive?
Junk bonds carry a higher risk of default than other bonds, but they pay higher returns to make them attractive to investors. comes with a credit rating of “BB” or lower and offers a high yield due to the increased risk of company default.
What is zero coupon bond?
Zero-coupon bonds make no coupon payments but are issued at a discounted price. 6. Municipal bonds. Bonds issued by local governments or states are called municipal bonds. They come with a greater risk than federal government bonds but offer a higher yield.
Why do bonds have a lower interest rate?
A bond with a high credit rating will pay a lower interest rate because the credit quality indicates the lower default risk of the business. 1. Convertible bond. A company may issue convertible bonds that allow the bondholders to redeem these for a pre-specified amount of equity.
What is the face value of a bond?
Principal (or Face Value) – The initial amount of money invested in the bond. Maturity – The date that the bond expires, when the principal must be paid to the bondholder. Coupon Rate – The interest payments that the issuer makes to the bondholder. They are typically made semi-annually (every six months) but can vary.
What is bond pricing?
Bond Pricing Bond pricing is the science of calculating a bond's issue price based on the coupon, par value, yield and term to maturity. Bond pricing allows investors. Debt Capital Markets.
What is a bond issued pursuant to?
Most bonds are issued pursuant to a Trust Indenture. In certain instances,bonds are issued pursuant to a Resolution of the issuer. Unless otherwise stated,the term Indenture, as used in this chapter, includes the Resolution.
What is the cover page of a bond?
The cover page of the Official Statement provides in large letters the nameof the bond issue and the principal amount. The name of the bond issue gives verybasic information regarding the financing. The name indicates whether the bondsare general obligation or revenue bonds. If a conduit borrower is involved, thename may include the name of the borrower, but it more often includes the nameof the project financed with the proceeds of the bonds. Some examples are listedbelow.
What does conduit borrower represent?
The conduit borrower will represent its status as avalidly created and organized corporation or a partnership. If the transactioninvolves qualified 501(c)(3) bonds, the borrower will represent and warrant as toits exempt status.
What is an indenture bond?
An Indenture generally includes the form of the bonds as an exhibit. TheIndenture may have the form of requisitions submitted to the trustee in aconstruction financing. In case of variable rate bonds, the Indenture will haveadditional exhibits relating to mandatory or optional tender by the bondholders,form of notices to be sent in the case of resetting of the interest rate or conductingan auction, and additional exhibits specific to the financing.
What is optional redemption?
Optional redemption is the redemption of bonds at the option of the issuer. This section permits the conduit borrower or the issuer to prepay its debt or torefinance its debt at a lower interest rate or under more favorable conditions.Cost-saving refundings can only occur if the issuer is permitted to optionallyredeem the bonds prior to their maturity date. In a conduit financing, because theborrower is the actual debtor, the borrower usually initiates the process of optionalredemption. This is done when the borrower pays off all or a portion of its debt tothe issuer before it is due and payable. Generally speaking, most fixed rate bondsare callable on and after their tenth anniversary date. This is referred to as, the"first call date." The issuer usually has to pay a premium if it chooses to optionallyredeem the bonds on the first call date. The optional redemption section states thefirst call date. It also provides the premium, if any, to be paid on the first call dateand subsequent years. The optional redemption section may require that the bondsmay not be called for redemption until a certain time period (ranging from 123days to one year) after the conduit borrower has paid its obligation to the issuer.This is to protect the bondholders from a subsequent bankruptcy of the conduitborrower.
What is the official statement of a conduit borrower?
The Official Statement contains a section stating that no litigation ispending or threatened against the issuer or the conduit borrower which would havean adverse impact on the bondholders. If the issuer or conduit borrower are partyto litigation which they feel should be disclosed, this section will describe thelitigation.
What is the security for bonds?
This section explains to the purchasers all funds and properties availableto the issuer to pay the debt service on the bonds. It lists all the funds pledged bythe issuer or the conduit borrower, or funds reasonably expected to be used by theissuer or the conduit borrower, to pay the debt service on the bonds. It describesany mortgage or security interest granted by the issuer or the conduit borrower inconnection with the bonds.
What are the characteristics of bonds?
Key Takeaways. Some of the characteristics of bonds include their maturity, their coupon rate, their tax status, and their callability. Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk. Most bonds come with ratings that describe their investment grade.
How do bonds work?
In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value. The company pays the interest at predetermined intervals (usu ally annually or semiannually) and returns the principal on the maturity date, ending the loan.
What is maturity in bond?
Maturity. This is the date when the principal or par amount of the bond is paid to investors and the company's bond obligation ends. Therefore, it defines the lifetime of the bond. A bond's maturity is one of the primary considerations an investor weighs against their investment goals and horizon.
How to calculate current yield?
This is calculated by dividing the bond's annual coupon by the bond’s current price.
Why do companies call bonds?
A company may choose to call its bonds if interest rates allow them to borrow at a better rate. Callable bonds also appeal to investors as they offer better coupon rates.
How does interest rate affect bonds?
Interest rates share an inverse relationship with bonds, so when rates rise, bonds tend to fall and vice versa. Interest rate risk comes when rates change significantly from what the investor expected. If interest rates decline significantly, the investor faces the possibility of prepayment. If interest rates rise, the investor will be stuck with an instrument yielding below market rates. The greater the time to maturity, the greater the interest rate risk an investor bears, because it is harder to predict market developments farther out into the future.
Why are bonds good investments?
Bonds are a great way to earn income because they tend to be relatively safe investments. But, just like any other investment, they do come with certain risks. Here are some of the most common risks with these investments.
What are the legal requirements for a federal bond issue?
1. One of the most important legal requirements for a federal bond issue is that a public meeting must be held after a reasonable marketing period. During this marketing period, usually lasting about a week, ...
Why should we care about the federal bond issue process?
Why should you care about the federal bond issuing process? It is important because federal bond issues tend to be the safest fixed-income investments available. After all, they are backed by the taxation powers of the federal government. The particular nature of each bond issue should still be carefully analyzed.
What is the role of a paying agent in a bond issue?
The agent sees that funds are appropriately distributed according to the intended purpose of the bond issue. After the closing of the bond distribution, the bond counsel distributes a complete set of closing documents to each participant. That brings us to the preparation of ...
What was the first open market bond?
The first open-market Treasury bonds were war bonds, issued to raise funds for the military. As these matured, the Treasury issued new bonds to pay for older ones, thereby creating a sustainable market of short-, medium-, and long-term bonds that could be easily saved or resold on the open market.
Where are federal bonds issued?
In the United States, federal bonds are issued by the Department of the Treasury. There must be a legal document that outlines the conditions under which the bond issue can be undertaken. U.S. government bonds are generally sold at auctions. An investor can buy government bond ETFs just as easily as stocks without knowing anything about ...
Is the bond market bigger than the stock market?
Global bond markets are larger than the collective stock markets, both in the monetary value of bonds outstanding and in dollar value of bonds traded daily. Yet, investors seem to know relatively little about bonds compared to stocks. Even federal bonds, known as Treasury bonds (T-Bonds) in the U.S., are not free from obscurity.
Who decides how bonds are sold?
Government officials must also decide how the bonds will be sold. The federal government often holds bond auctions and invites multiple underwriters to attend and participate in the bidding process.
What is document corruption?
Document corruption is when a document contains data errors that prevent it from loading properly. You can spot it pretty quickly if: Your document layout and formatting is all wrong. You’re seeing screen distortion. Your document has unreadable characters, wrong icons, or isn’t displaying pictures.
How to manage an army of documents?
Managing an Army of Documents. First, take a look at the army of documents on your servers. If you generate new documents from scratch every time, your law office will likely have an enormous library of documents that lawyers pull from to hodge-podge a document together as quickly as they can.
What is an affidavit brief?
Briefs (arguments as to why the filer should win their case or see their motion approved) Affidavits (a statement made under oath claiming that a fact is true to the best of the affiant’ s knowledge) Instrument (a formal legal document that grants rights, i.e. wills, deeds, etc.)
Can a perfectly formatted document fall apart?
A perfectly-formatted document could fall apart, or an administrative assistant could pull up an outdated template for a document. This is where a great document software can save the day. Here’s how you should format some of the most common legal documents, and how a document software can ensure you do it right.
Is legal formatting bad for lawyers?
Legal formatting can be a nightmare for your attorneys, especially in a complicated case. And when you’re dealing with big cases, you’d rather have your attorneys focused on the big picture.
Do lawyers create documents?
Law firms create documents all the time. In a single case, a lawyer and their team can generate a whole library of documents from briefs to affidavits to court filings.
Is legal formatting important?
So it’s safe to say that legal formatting is an incredibly important part of the business. The problem is, between cases and meetings and document preparation, building those documents can get a bit hairy.
What Is An Indenture?
- An indentureis a binding contract between an issuer and bondholder that outlines the characteristics of the bond. It typically includes: 1. Date of maturity 2. Interest payment dates 3. Whether it is convertible or callable (or neither) 4. Terms and conditions
Key Terms
- Yield/Yield to Maturity (YTM)– The annual rate of return of a bond that is held to maturity (assuming all payments are not delayed). Principal (or Face Value)– The initial amount of money invested in the bond. Maturity– The date that the bond expires, when the principal must be paid to the bondholder. Coupon Rate– The interest payments that the issuer makes to the bondholder. …
What Are Par, Premium, and Discount Bonds?
- Premium Coupon rate > Yield
1. Investors will pay a premium (higher price) for a bond that offers a higher coupon rate than the market yield. - Discount Coupon rate < Yield
1. Investors will pay a discount (lower price) for a bond that offers a lower coupon rate than the market yield.
Examples of Bonds
- 1. Company A issues five-year bonds on January 1, 2018, which cost $100 each and pay 5%. The YTM is 6%. What is the yield? 1. The yield to maturity (YTM) is 6%. What is the principal? 1. The principal is $100. What is the maturity? 1. January 1, 2023 (the maturity date is in five years from the issue date). What is the coupon rate? 1. The coupon rate is 5%. 2. Company B issues two-ye…
Government Bonds
- The following are examples of government-issued bonds, which typically offer a lower interest rate compared to corporate bonds.
Examples of Government Bonds
- 1. The Canadian government issues a 5% yield bond that only pays at maturity. What type of bond is this? 1. A zero-coupon bond (discount bond) 2. The U.S. government issues a 2% bond that matures in 3 years and a 3.5% bond that matures in 20 years. What are these bonds called? 1. 2% bond: Treasury note (maturity is between 1-10 years) 2. 5% bond: Treasury bond (maturity is mo…
Corporate Bonds
- Corporate bonds are issued by corporationsand offer a higher yield relative to a government bond due to the higher risk of insolvency. A bond with a high credit rating will pay a lower interest rate because the credit quality indicates the lower default risk of the business.
Examples of Corporate Bonds
- 1. Company A issues bonds with a high credit rating (above A) and may be converted to stock. What type of bond is this? 1. Convertible investment-grade bond 2. Company B notices a downward trend in interest rates and decides to redeem its low credit rating (CC) bonds with a plan to reissue them at a lower rate. What type of bond are they redeeming? 1. Callable junk bon…
Related Readings
- Thank you for reading CFI’s guide on Bonds. To keep learning and advancing your career, the following resources will be helpful: 1. Bond Pricing 2. Debt Capital Markets 3. Fixed Income Trading 4. Introduction to Fixed Income Course