Trusts/trustees structure

This chapter is an account of trustee and agency services that are required to support proper functioning of the debt capital markets. A distinction will be made between responsibilities of a trustee, and the other services offered by trust banks, known as agency services, to support debt markets structured products. The purpose of this chapter is to give the reader a broad understanding of the work undertaken by trust banks and how these services relate to the structures themselves. It should be noted that while many of these services are offered globally, the focus of this chapter is primarily on the European structured finance market. 

The role of the trustee in a Eurobond issuance is to serve as a bridge between the issuer of the bonds and the bondholders throughout the life of the issuance. The scope of duties undertaken by a trustee in connection with any given issuance may vary from structure to structure, but the essence of the trustee s role is to hold and exercise as necessary, and as permitted by the trust documentation, the legal rights of each bondholder in the transaction. 

The use of a trust structure in a Eurobond issuance can minimise significantly the need to consult bondholders on certain document modifications. The issuer and trustee typically craft the trust deed to empower the trustee to exercise discretion on behalf of all bondholders within specified parameters. Under current market standards, the trustee is normally permitted to agree to nonmaterial modifications of the terms of a Eurobond issuance and exercise very specific powers, such as the power to appoint or approve replacement agents within defined circumstances and criteria, without consultation of the bondholders. The ability of the trustee to agree to nonmaterial term modifications and exercise certain prescribed powers without consultation of bondholders benefits all parties to the deal both practically and economically because expensive and time consuming bondholders meetings are not necessary to deal with such issues. 

It is worthwhile to note that in addition to delineating the specific powers and duties of a trustee within a given trust structure, the issuance documentation is sometimes drafted to draw a distinction between the roles of note trustee and security trustee. ... 

The main role of the trustee in the event of a default is to protect the interests of the bondholders to the extent the trustee is obligated or empowered to do so under the terms of the trust documentation. The degree of activity a trustee undertakes in a default situation can vary greatly depending upon the terms of the issuance documentation, the structure of the deal and the circumstances of the default. The basic... 

The Appendix provides a quick reference guide of the trustee and agency roles offer by Trust Banks to support the Structured Finance Market. 

The use of trusts and professional trustees within Eurobond issuance serves a number of legal and practical purposes. In the main, however, the essential service the trustee brings to the transaction is stability to the transaction and piece of mind for bondholders and issuers alike. Accordingly, the trustee is an invaluable element of a successful secured Eurobond transaction. Further to the role of trustee the Trust bank will offer a range of services to support the structured finance market place. 

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