Covenant to pay: Difference between revisions

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The Issuer can satisfy that obligation by payment to the Issuing and Paying Agent, provided the Issuing and Paying Agent then pays Noteholders.
The Issuer can satisfy that obligation by payment to the Issuing and Paying Agent, provided the Issuing and Paying Agent then pays Noteholders.


The Trustee holds this covenant on trust for the Noteholders.}}}}You might wonder what this is all about, especially if you encounter it wrought from the inscrutable curled iron prose of a magic circle capital markets swat team.
The Trustee holds this covenant on trust for the Noteholders.}}}}You might wonder what on ''Earth'' this is all about, especially if you encounter it cast with the wrought iron prose that the school matron beats into Linklaters trainees with her rolling pin during their Debt Capital Markets seat.


So I think it is this. This is reverse engineering logic from text...
There is a trustee for noteholders.  


There is a trustee for noteholders. The covenant gives the trustee legal standing to sue/act for noteholders on a contract that it is not otherwise party to on the noteholders behalf. That is discharged when issuer pays away to the agent - it has done everything if can do. But if the agent then fails before paying noteholders the obligation springs back. This is so issuer has a loss it can sue the agent for... If it was totally discharged vis a vis noteholders then the (insolvent) agent gets a free pass.
The [[covenant]] gives the trustee a [[locus standi|standing]] to act on the noteholder’s behalf under a unilateral [[bearer instrument]] (the note itself) to which the trustee is not otherwise party.  


The holding the covenant on trust for  noteholders I guess is extra security and allows noteholders to trace funds Vs trustee I'd it does a bolter
The issuer discharges its covenant to the trustee when it pays away the amount in full to the paying agent - it has, after all, parted with its money, put them in the hands of a professional financial institution, and done everything if can do. But if the agent then fails — [[global financial crisis|it can happen, kids]] — before paying noteholders the Issuer’s obligation springs back. This is so issuer has a loss it can sue the agent for... if issuer’s debt to noteholders is discharged by payment to its own paying agent, then noteholders have no claim under the notes at all, therefore the issuer has no liability, suffers no claim, and has no rationale for proving in the agent’s insolvency.
 
But honestly what a shower.  


The holding the covenant on trust for  noteholders we guess is extra security and allows noteholders to trace funds vs trustee if it does a bolter?
{{Sa}}
{{Sa}}
*[[Signal versus noise]]
*[[Signal versus noise]]

Revision as of 21:55, 31 October 2022

The Law and Lore of Repackaging

Covenant to pay in a Nutshell

The Issuer must unconditionally pay principal when it becomes due in the Contractual Currency, with interest, as set out in the Conditions. The Issuer can satisfy that obligation by payment to the Issuing and Paying Agent, provided the Issuing and Paying Agent then pays Noteholders.

The Trustee holds this covenant on trust for the Noteholders.

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You might wonder what on Earth this is all about, especially if you encounter it cast with the wrought iron prose that the school matron beats into Linklaters trainees with her rolling pin during their Debt Capital Markets seat.

There is a trustee for noteholders.

The covenant gives the trustee a standing to act on the noteholder’s behalf under a unilateral bearer instrument (the note itself) to which the trustee is not otherwise party.

The issuer discharges its covenant to the trustee when it pays away the amount in full to the paying agent - it has, after all, parted with its money, put them in the hands of a professional financial institution, and done everything if can do. But if the agent then fails — it can happen, kids — before paying noteholders the Issuer’s obligation springs back. This is so issuer has a loss it can sue the agent for... if issuer’s debt to noteholders is discharged by payment to its own paying agent, then noteholders have no claim under the notes at all, therefore the issuer has no liability, suffers no claim, and has no rationale for proving in the agent’s insolvency.

The holding the covenant on trust for noteholders we guess is extra security and allows noteholders to trace funds vs trustee if it does a bolter?

See also