Covenant to pay
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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. |
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.
So I think it is this. This is reverse engineering logic from text...
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 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
But honestly what a shower.