No, you will not become an indentured servant if you purchase a bond with a closed-end indenture provision. So you can stop watching Downton Abbey as research.
Every bond issue comes with some form of collateral to secure the bond issue, just like you put up your home as collateral when you take out a home equity loan. Collateral could be in the form of buildings and real estate, boxcars on a train, or a portfolio of securities such as stocks, other bonds, and Treasury notes. While it may be hard to believe, there are some bonds, called open-end indentures, that are secured with only a partial claim to collateral, since the same collateral was pledged to more than one bond issue. But with a closed-end indenture bond, holders have the exclusive right to the collateral that was pledged to secure the bond. Since this type of bond carries less risk than an open-end indenture bond, the premium is usually lower.
So if the bond issuer defaults on the bond, you would be entitled to whatever collateral was put up to secure it. With an open-end indenture bond, you might not be considered to have a “senior claim” to the collateral, and if they default you could be left holding the bag. You might think this could never happen, but consider the city of Detroit filing for bankruptcy not too long ago, and the continuing economic struggles in Puerto Rico with many public entities defaulting on their bond issues.
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Finance: What is Trust Indenture Act 39?13 Views
finance a la shmoop what is the trust indenture Act of 1939 the same writer
who misread that moral obligation bond messed this one up as well [Dentures are put into a glass]
sorry 1-800 Fixodent so arguably the most boring act of all time even more [Elderly woman on the phone]
boring than the third act of Henry the fourth part 2 a total snoozefest the [People in the crowd falling asleep]
trust indenture Act basically extended the set of laws trying to make financial
dealings more fair and square for the little guy the average Joe the Joneses [The Jones family stood in front of their house]
specifically this act focuses on trusts ie legal entities set up to manage and
allocate money in the event that life you know changes you die you have kids
you get married you get divorce you turn into a zombie you know all those so the [Pictures of all the life events]
TI a does a couple of things first there's the indenture part and indenture [Picture of a multitool]
is a written agreement a legal contract more or less the Act made it illegal for
bonds of five million bucks or more to be offered without one of these [Indenture being stapled to an act]
protective docs and it had to disclose everything up front so an unwitting bond
holder wouldn't suddenly be shocked to discover that their bonds cease to hold
value after the third waning moon following the winter solstice or [The moon is covered by darkness]
whatever other clever catches the slimy issuer decided to throw in there and yes [Small print is highlighted]
believe it or not before this act you could actually borrow money on a [People shaking hands]
handshake and in theory that was legal there was the requirement that there was
paperwork behind it yeah go figure all right remember it's called the trust
indenture Act we covered indenture and covered Act cuz it does something well
the trust part what about that well the Act also made it a requirement for there
to be a trustee appointed any time a bond is issued someone whose job it was
to make semiannual disclosures of any relevant info related to the bond mainly [Woman in an office holding a disclosure]
its credit worthiness or if there were any red flags needed that it might not [Credit rating gauge]
pay back its interest in principal on time so yeah by putting in these [Woman waving a red flag]
safeguards I'm putting him in place a little guy wouldn't get stepped on in [The Jones family is crushed by a giant foot]
theory thank you trust indenture Act of [The dentures are taken out the glass]
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