Corporate Debenture Trust
A debenture trust is an entity created to manage the issuance of debentures, which are bonds issued by companies in exchange for capital. A debenture trust is a necessary component of most debt issuances, since it is responsible for holding the legal rights to the debt structure and for protecting the rights of the lenders in the transaction.
The debt securities issued by a company are typically held by a trust. These securities are the companys promise to the bondholders to repay the principal, plus interest, at the end of the bonds term. This trust is referred to as the debenture trust.
The purpose of a debenture trust is to protect the interests of both the bond issuer and the bondholders. The trust establishes the terms and conditions of the debt agreement, including the payments of interest and principal, the extent of the issuers rights and obligations, and the terms of any security furnished by the issuer. The debenture trust also manages the payment of interest payments to bondholders and coordinates any redemption of the bonds by the issuer.
A debenture trust also generally acts as a trustee for the bondholders. This means that the trust holds legal title to the securities and administers the bondholders rights and remedies in the event of nonpayment or other violation of the debt agreement by the issuer. The trustee is a fiduciary and is obligated to act in the best interests of the bondholders.
Debenture trusts are typically established by the bond issuer in the form of a trust deed. The deed outlines the rights, duties and obligations of the trustee and specifies the duties of the trustee with regard to the management of the securities. Typically, the trustee is responsible for keeping an accurate record of all transactions, for safekeeping of the issuers security documents, and for timely delivery of the funds due to the bondholders.
In addition to managing the securities, the trust also issues certificates of deposit to the bondholders as evidence of ownership and is responsible for paying the interest and principal due to the bondholders on the due date, as specified by the trust deed. The trust must also maintain a record of the bondholders and provide them with the necessary information regarding their bonds. This information is typically contained in annual reports and audited financial statements.
The debenture trust is a key entity in any debt transaction and is responsible for managing the issuance process and protecting the rights of the bondholders. The trust ensures that the company honoring its obligations to the bondholders, while at the same time providing a measure of protection for the lender. It is therefore important for the issuer and the lender to select an experienced and reliable debenture trust to ensure that the interests of the bondholders and the lender are fully protected.
