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In a prior thread ericjp1 asked how to obtain the equivalent of a bond "prospectus" before buying the bonds. No one has attempted an answer so far and I think this is an important enough question to deserve its own thread.
Everyone: Please feel free to jump in with further details/corrections.
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ericjp1,

Bonds do have the equivalent of a prospectus. It's called an "indenture". In effect, it is a deed of trust between the bond issuer and the bondholders covering such things as coupon rate, call features, subordinations, collaterals, etc. But how one gets access to the indenture is beyond me. I've tried doing web searches and came up empty.

Through indirect means it is possible to get an idea of what the indenture specifies by reading the SEC filings of the company whose bonds you're interested in. In the discussions and footnotes, such things as restrictions on paying dividends to stockholders, the minium coverage amounts, permissions to issue new issues, etc. are covered, as well as ongoing efforts to maintain credit facilities, engage in tender offers, etc.

However, the bottom line seems to be this:

Yes, the indenture is a legally-enforceable document in which the company makes promises to its bondholders it fully intends to keep, but circumstances, such as severely deteriorated business conditions, will often dictate otherwise and once a company goes into Chapter 11 things become a whole 'nother ballgame and promises get rewritten.

To repeat, the indenture is a promise, not a guarantee. (Only Treasuries are guaranteed.)

If security of your principal is important to you, having access to the indenture isn't going to matter. What matters is the realities of the company's financial statements [the truth of which is a whole 'nother shadow-boxing match] and its business prospects going forward, which are things you can research yourself and make decisions about without reference to the indenture. (IMHO.)

Charlie

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To repeat, if anyone knows more or differently about indentures, please speak up. I'd like to know myself what's happening, rather than stumbling around in the dark as I have been.



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