Trust Indenture Act of 1939

Trust Indenture Act of 1939
The SEC describes the Trust Indenture Act of 1939 like so:
This Act applies to debt securities such as bonds, debentures, and notes that are offered for public sale. Even though such securities may be registered under the Securities Act, they may not be offered for sale to the public unless a formal agreement between the issuer of bonds and the bondholder, known as the trust indenture, conforms to the standards of this Act.
As we see above, the Trust Indenture Act of 1939 is all about protecting bondholders. If a corporation wants to sell $5,000,000 or more worth of bonds that mature outside of one year, they must do it under a contract or indenture with a trustee, who will enforce the terms of the indenture to the benefit of the bondholders. In other words, if the issuer stiffs the bondholders, the trustee can get a bankruptcy court to sell off the assets of the company so that bondholders can recover some of their hard-earned money. Sometimes corporations secure the bonds with specific assets like airplanes, securities, or real estate. If so, they pledge title of the assets to the trustee, who just might end up selling them off if the issuer gets behind on its interest payments.


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