Debt securities payment provisions
Debt securities payment provisions

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Debt securities payment provisions
  • The nature of an issuer's payment obligations—principal and interest
  • Documenting the issuer’s obligation to pay amounts due under the debt securities
  • Debt securities—currencies of payment
  • Debt securities—repayment of principal
  • Debt securities—early redemption
  • Debt securities—payments of interest
  • Floating v fixed rates of interest on debt securities
  • Failure to pay interest or principal

The nature of an issuer's payment obligations—principal and interest

Debt securities will include covenants by an issuer to pay interest on the principal amount outstanding and to repay that principal amount. In this regard, a debt security is similar to a loan, with the issuer comparable to a borrower and the investor comparable to a lender. However, there are some variants on the manner in which interest and principal are paid in the case of debt securities.

The covenant to pay interest and repay principal will be legally binding and a failure to pay either will usually create an event of default requiring all amounts outstanding to be repaid to investors.

Payment conventions include a number of features such as the method of calculating interest or principal due.

Interest may be payable at a fixed rate or a floating rate; principal may be repaid in a single payment or in instalments over the life of the debt securities.

This Practice Note looks at the market conventions which may apply to payments due on debt securities.

Documenting the issuer’s obligation to pay amounts due under the debt securities

Debt securities will set out the issuer’s obligation to pay interest and principal in their terms and conditions. In addition, if there is a trustee in place, the issuer will covenant to the trustee