Trust Indenture Covenants definition

Provisions within a bond Indenture that establish the issuer’s responsibilities and bondholder rights. Typical covenants include:

Rate Covenant – The bond issuer’s pledge to maintain rates at a level that is sufficient to meet operation and maintenance costs.
Maintenance Covenant – The bond issuer’s pledge to maintain the project in good working order.
Insurance Covenant – The bond issuer’s pledge to carry insurance on the property.
Financial Reports and Audits – The bond issuer’s pledge that it will maintain proper records and than an accounting firm will be retained to do an outside audit. This pledge is designed to avoid the possibility of funds being misused.
Issuance of Additional Bonds – States that if there is a closed-end indenture, no additional bonds that have an equal claim on the pledged revenues may be issued against the same security. However, if there is an open-end indenture, additional bonds may be issued in the future for expansion of the project. Typically, the project must meet certain earnings tests before any additional bonds may be issued.
Non-discrimination Covenant – The bond issuer’s pledge that no special rates will be granted to any person or group.
Catastrophe Call – A callable bond provision which is only enacted when the underlying collateral is destroyed.

Trust Indenture Covenants