BOND DEFAULTS AND THE DILEMMA OF THE INDENTURE TRUSTEE

Steven L. Schwarcz, Duke University School of Law
Gregory M. Sergi

Abstract

This article, attached for your review, rethinks the standard of care for trustees of public bonds. The present standard is intolerably vague, generating cost and inefficiency in the public bond markets. Yet bondholder governance is increasingly recognized as a critical component of the larger realm of corporate governance, and indeed more than eighty percent of capital market financing raised by U.S. corporations now occurs through public bond offerings. This article examines how that standard of care should be modified to make indenture trustees more effective.