Role of a bond trustee

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

  • Role of a bond trustee
  • Who is the bond trustee?
  • The role of the bond trustee
  • Reasons for appointing a trustee
  • Holding payments on trust for bondholders
  • Power to invest proceeds of payment
  • Monitoring the issuer
  • Acting on behalf of the bondholders—determining and/or waiving events of default
  • Acting on behalf of the bondholders—accelerating the bonds
  • Acting on behalf of the bondholders—modifying the terms of the bonds
  • More...

Role of a bond trustee

Not all bond issues involve a trustee. It is up to the issuer to decide whether to appoint a trustee or a fiscal agent—see Practice Note: Transaction structures—standalones versus programmes.

Involving a trustee has important consequences, particularly for the bondholders (see Reasons for appointing a trustee, below).

For ease of reference in this practice note the term 'bonds' is used generically to refer to all types of debt securities (including bonds, notes and commercial paper). Note, however, that different considerations may apply in structured finance transactions. For information on the distinction between the terms 'bonds' and 'notes' and the meaning of 'commercial paper', see Practice Note: Types of debt securities.

Who is the bond trustee?

A trustee is appointed by the issuer and acts as an intermediary between the issuer and the bondholders, representing the interests of the bondholders. The trustee function is typically carried out by a professional trust company.

A typical bond issue involves the issuer also appointing an agent or (more normally) a group of agents to carry out various administrative duties for it in connection with the issue (see Paying agent(s) and Other agents). However, where an issuer decides to use a trustee structure, the trustee and the agents will need to work together.

While the trustee and the agents may be members of the same bank or financial institution, the trustee

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