Open-End Indenture

Open-End Indenture

A clause in a revenue-bond agreement that permits the issuance of additional revenue bonds in the future, provided that the revenue of the previous year was sufficient enough to cover the costs of the new issue.

Notes:

This type of restriction in a bond agreement mainly serves to provide flexibility for the bond issuer, allowing it to alter its financing mix. However, by stipulating that previous revenue levels must cover any new issues of bonds, bondholders are assured a measure of safety.

See also: Bond, Debt Financing, Indenture, Municipal Bond, Revenue Bond

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Open-end Indenture

A term in a bond contract that allows the bond issuer to guarantee the collateral used to back the bond issue on any number of other bond issues. This is the opposite of a closed-end indenture in which only one bond can be backed by a single collateral.

Notes:

If the bond issuer defaults, an open-end indenture will weaken the claim of the bondholders on the collateral on the bond because there is more than one claim on collateral. The more claims that exist on the collateral, the less safety a bondholder has.

See also: Bond, Closed-end Indenture, Collateral, Covenant, Indenture