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Dissecting the Distinctions: An Exploration of Bond Indentures and Term Sheets

Bond indentures and term sheets are both pivotal financial instruments utilised in the realm of investments. Although they both aim to secure financial obligations between parties, there are substantial disparities between them in terms of structure, intent, and legal ramifications. It is imperative for investors and organisations to comprehend these differences in order to make informed investment decisions and negotiate favourable terms in bond issuances and loan agreements.



A bond indenture is a legally binding agreement between a bond issuer and a bondholder that outlines the terms and conditions of a bond issuance. It encompasses crucial details such as the issue size, interest rate, maturity date, coupon payment schedule, and other pertinent information. Additionally, the bond indenture also spells out the procedures that can be taken by the bondholder in the event of default.


Conversely, a term sheet serves as a preliminary, non-binding agreement between a borrower and a lender that outlines the basic terms and conditions of a loan. It comprises information such as the loan amount, interest rate, repayment schedule, and other key details of the loan agreement. Unlike a bond indenture, a term sheet does not have the same level of legal enforceability and is only considered a starting point for the negotiation and drafting of a loan agreement.


It is worth noting that bond indentures are more comprehensive in nature and possess a higher degree of legal enforceability compared to term sheets. Bond indentures are often more detailed and lengthy, as they encapsulate the terms and conditions of a bond issuance for the entire duration of the bond. Term sheets, on the other hand, are generally shorter and less comprehensive, merely offering a basic overview of the terms of a loan agreement and lack legal enforceability until a loan agreement is executed.


The purpose of bond indentures and term sheets also diverges significantly. Bond indentures are employed in the issuance of bonds, which provide long-term investment opportunities for investors, allowing them to receive a fixed income in exchange for lending funds to an issuer. Term sheets, in contrast, are utilised in securing short-term or medium-term loans, such as commercial loans or lines of credit.


In conclusion, bond indentures and term sheets are both instrumental financial instruments that secure financial obligations between parties. While they share similarities, they possess notable differences in terms of structure, purpose, and legal enforceability. Understanding these disparities is essential for investors and organisations seeking to invest in bonds or secure loans, enabling them to make informed decisions and negotiate favourable terms.


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For further information, please contact info@langdoncap.com


About the author


Sabbir Rahman is Managing Director of Langdon Capital and a Partner at Bridging Funding. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.


About Langdon Capital


Langdon Capital provides in-house transaction services to C-suites and Boards of publicly-listed and PE-backed businesses during the negotiation, execution and due diligence of corporate finance and capital markets transactions and senior interim resourcing solutions across finance, treasury, strategy and corporate development | contact info@langdoncap.com | visit www.langdoncap.com


About Bridging Funding


Bridging Funding is a private credit fund engaged in principal lending of commercial property bridging loans in the UK and select South-East Asian markets. We lend between £200k and £20m per transaction. As a private credit fund, our credit sanctioning process is leaner and more flexible than lenders funded by bank capital | contact sr@bridgingfunding.com | mention code “Langdon” for preferential rates | visit www.bridgingfunding.com



This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.

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