Report took a close look at the real estate bond indentures
Earlier this year, the company executed the waiver agreement and subsequent amendments with holders of its outstanding senior secured bonds and the Bond Indenture
trustee and announced ongoing discussions with the bond holders concerning a restructuring of its outstanding debt.
Maturity should be a key variable in explaining the inclusion of explicit restrictive covenants in the bond indenture
. The model of Barnea, Haugen, & Senbet, (1980) suggests that long-term securities provide less discipline on borrowing firms.
Second, if a public bond indenture
contains a particular covenant, the covenant is usually looser than the same covenant in a private loan agreement.
The conflict of interest between stockholders and bondholders, and the consequent agency costs of debt, might be mitigated by inclusion of certain covenants in the bond indenture
Morgan & Co., thereby creating one of the top five companies in the bond indenture
trustee business and becoming an important presence in New York City.
The formal loan agreement (the bond indenture
) specifies the authorized dollar amount of the issue, the term of the bonds, maturity date, and periodic interest with payment dates.
Default risk can be lowered by adding covenants to the bond indenture
. Covenants provide safeguards to bondholders by restricting business activities.
Under the terms of a bond indenture
covering $20.8 million in 5.75-per-cent convertible bonds, the company is required to maintain a net worth of at least $20 million.
The bonds are secured by a net revenue pledge and certain funds under the bond indenture
. A portion of the series 2010 bonds includes an irrevocable commitment of approximately $5 million in PFC funds annually.
The FAA's agreement is based upon the inclusion in the bond indenture
of an extraordinary mandatory redemption of the Series 1996 PFC Bonds upon the issuance by the FAA of its notice that the city's PFC authority has been so reduced.