Eric Schaffer, ‘Cross-Border Risks for Indenture Trustees: The Limits of Comity and the Need to Adapt Standard Provisions of the Trust Indenture’

ABSTRACT
Of all the entities involved in the issuance of public debt, few receive less attention than the indenture trustee and none assumes greater potential liability relative to the consideration received. Concerns of the issuer understandably are paramount, followed by those of investors. The issuer and underwriters contact the indenture trustee late in the process with the expectation that it will accept modest compensation and market standard documents without modification. This usually works well, even in default situations, because the trustee typically enjoys certain boilerplate protections. These protections may be wholly inadequate, however, in cross-border defaults where the trustee is exposed to the risk of conflicting judgments in different countries.

Litigants may pursue claims against indenture trustees in an effort to pressure the issuer or competing creditors, or simply because the trustee is solvent. If courts in different countries permit issuers and creditors to seek orders that would require an indenture trustee to take inconsistent actions, the trustee can be trapped. Disregarding either court’s determination of parties’ rights could expose the trustee to contempt sanctions and enormous money damages …

Schaffer, Eric A, Cross-Border Risks for Indenture Trustees: The Limits of Comity and the Need to Adapt Standard Provisions of the Trust Indenture (September 17, 2021). Capital Markets Law Journal, forthcoming, University of Pittsburgh Legal Studies Research Paper No 2021-31.

First posted 2021-12-17 17:00:33

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