Page 32 - FINAL CFA SLIDES DECEMBER 2018 DAY 14
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LOS 50.b: Describe content of a bond Session Unit 14:
indenture. 50. Fixed income securities: Defining elements
Bond indenture (also called trust deed in US/Canada) defines the legal obligations of and
restrictions on the borrower and forms the basis for all future transactions between the bondholder
and the issuer.
Its provisions are called covenants and include both negative covenants (prohibitions on the borrower)
and affirmative covenants (actions the borrower promises to perform).
LOS 50.c: Compare affirmative and negative covenants and identify examples of each., p.3
tanties
• Negative covenants –things you cannot do: restrictions on sales of assets and on additional
borrowings; protect the interests of bondholders and prevent the firm from taking actions that would
increase the risk of default.
• Affirmative covenants –things you must do e.g. make timely interest and principal payments,
insure and maintain assets, and comply with applicable laws and regulations.
