Trustee | Characteristics of Bonds | Long-Term Debt Financing | Financial Management
A trustee is the third party, usually commercial banks or finance companies, appointed by the bond issuer when a bond is issued to represent and protect the collective interest of the bondholders. A trustee is considered as a watchdog of the borrower because they have to certify and watch the behavior of borrower over the time.
The trustee’s responsibilities are to authenticate the bond issue’s legality at the time of issuance, to watch over the financial condition and behavior of the borrower, to make sure that all contractual obligations are carried out, and to initiate appropriate actions if the borrower does not meet any of these obligations. The trustee is compensated directly by the corporation, a compensation that adds to the effective costs of borrowing.