Indenture: Definition and Types in Finance

In real estate, an indenture is a deed in which two parties agree to continuing obligations. For example, one party may agree to maintain a property and the other may agree to make payments on it. The agreement mentions that XYZ Inc. would maintain a debt-equity ratio of 2.0x throughout the tenure of the loan, and any breach would trigger the event. Therefore, the borrower (XYZ Inc.) and the lender (ABC Bank) agreed upon this condition of maintaining the debt-equity ratio above 2.0x. XYZ Inc. is obliged to maintain the ratio throughout the loan tenure and is expected to infuse more equity capital if the ratio falls below the threshold figure of 2.0x.

• The indenture is then scrutinized closely to make sure there is no ambiguity in calculating the financial ratios that determine whether the issuer is abiding by the covenants.
• Indentures were initially used to convey land and for service contracts of seven years.
• An indenture is a legal contract between two parties, particularly for indentured labour or a term of apprenticeship but also for certain land transactions.
• Should a conflict arise between the issuer and bondholder, the indenture is the reference document utilized for conflict resolution.
• A credit indenture is an underlying contract which details all the clauses and provisions linked to a particular credit offering.

In the case of bonds, the indenture shows the pledge, promises, representations and covenants of the issuing party. When the offering memorandum is prepared in advance of marketing a bond, the indenture will typically be summarised in the “description of notes” section. In modern-day finance, it has common usage in bond agreements, real estate deals, etc.

What is an indenture of conveyance?

A bankruptcy indenture refers to the proof of claim on a particular property in the event of bankruptcy. Generally, the bankruptcy indenture provides information about the collateralized property and, in the process, constitutes the lender’s claim against the borrower, which is secured by the lien on the property. A real estate indenture is a legal document between two parties wherein both agree to continue their obligations. In this case, the first party agrees to maintain the real estate property while the other party agrees to repay the property.

The indenture also refers to a legal and binding agreement, contract, or document between two or more parties in real estate. So, indenture has also referred to a contract binding one person to work for other for a set period (indentured servants), mainly European immigrants. A real estate deed in which two parties agree to continue obligations; for example, one party may decide to maintain the property and make periodic payments. It also specifies the essential features of a bond, like its maturity date, the timing of interest payments, the method of interest calculation, and components.

Meaning of indenture in English

It will breach the agreement if he fails to repay the principal at the end of the loan tenure. An indenture is a legal agreement, deed, or contract between two or more parties. Historically, this type of contract was used to legally bind one person, such as an indentured servant, to work for another, as a judicial punishment, or for debt repayment. These professionals monitor interest payments, redemptions, and investor communications. Essentially, their role is to oversee and administer all of the terms, clauses, and covenants of an indenture issued by a company or government agency.

The indenture outlines important information, e.g., interest rate, maturity date, covenants, and other terms and conditions of the credit offer. A trust indenture is similar to a bond indenture, except it also details the trustee’s responsibilities in overseeing all of a bond issue’s terms. In bankruptcy law, an indenture will be referenced as proof of a claim on a property.

In the fixed-income market, an indenture is hardly ever referred to when times are normal. But the indenture becomes the go-to document when certain events take place, such as if the issuer is in danger of violating a bond covenant. The indenture is then scrutinized closely to make sure there is no ambiguity in calculating the financial ratios that determine whether the issuer is abiding by the covenants. These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘indenture.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. In the early history of the United States, many European immigrants served a period of indentured labour in order to pay the cost of their transportation. This practice was common during the 17th and 18th centuries, where over half of immigrants worked off an average of three years’ servitude.

Indentures also help provide details on the collateralized property, constituting a lender’s claim against a debtor, typically secured with a lien on the debtor’s property. In the U.S., there can be several types of indentures, all typically involved with debt agreements, real estate, or bankruptcy. In a credit offering, a closed-end indenture clause may be used to detail any collateral involved that provides backing for the offering. Closed-end indentures include collateral as well as provisions that ensure the collateral may only be assigned to one specific offering. In bankruptcy law, an indenture may be referenced as proof of a claim on property.

What is an Indenture?

A credit indenture is an underlying contract which details all the clauses and provisions linked to a particular credit offering. In the case of unsecured bond offerings, this type of indenture is known as a debenture. It usually safeguards the interests of both the bondholders and the bond issuers. In a closed-end contract, the collateral used also supports the credit offer. It ensures that the collateralized property can assign to a specific credit offering, acting as collateral and provision. An indenture is a particular formal contract or deed made between two or more parties.

• If the issuer can “call” the bond, the indenture will also include call protection for the bondholder, which is when the issuer will not be able to repurchase the bonds from the market.
• Indenture refers to a legal and binding agreement, contract, or document between two or more parties.
• In the early history of the United States, many European immigrants served a period of indentured labour in order to pay the cost of their transportation.
• It specifies the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation, callability, and convertible features, if applicable.
• Indentures also help provide details on the collateralized property, constituting a lender’s claim against a debtor, typically secured with a lien on the debtor’s property.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.

Real Estate Indenture:

For example, a corporate indenture would be a deed describing terms and conditions for debt securities issuance. In the United States, public debt offerings in excess of $10 million require the use of an indenture of trust under the Trust Indenture Act of 1939. These two are in a regular contractual, arm’s length, non-fiduciary, non-equity relationship. Typically a credit indenture is used for the sake of bond issuers and bondholders. It specifies the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation, callability, and convertible features, if applicable. A bond indenture also contains all the terms and conditions applicable to the bond issue.

A bond indenture also helps in containing all the terms and conditions applicable to the bond issue. It also usually safeguards the interest of both the bondholders and the bond issuers. In a closed-end indenture, the collateral used also helps provide backing for the credit offer, which is also called acts as collateral and provision; it also helps ensure that the collateralized property will be assigned to a particular credit offering. It states the maturity date and the interest rate, also called a bond indenture. If the issuer can “call” the bond, the indenture will also include call protection for the bondholder, which is when the issuer will not be able to repurchase the bonds from the market.

Indenture refers to a legal and binding agreement, contract, or document between two or more parties. David borrowed a sum of $1,000,000 from SDF Bank to purchase a new real estate property. He signed the debt agreement with the lender to make the principal repayment at the end of five years and to make interest payments at the agreed schedule’s end. Therefore, SDF Bank agreed to the bullet payment for the principal component, while David has to make the interest payments.

Other critical information included in the indenture are the financial covenants that govern the issuer and the formulas for calculating whether the issuer is within the covenants (usually ratios based on corporate financials). Should a conflict arise between the issuer and bondholder, the indenture is the reference document utilized for conflict resolution. These indentures will also be known as debentures in nonsecure, uncollateralized bond offerings. It also specifies the main features of a bond, like its maturity date and the timing of interest payments.

Beginning in medieval England, an indenture can be defined as a specific agreement within a contract noted with a specific duration or significance. Indentures were initially used to convey land and for service contracts of seven years. For example, bond indentures are indentured trusts that delineate various interests when companies issue bonds in financing agreements.