This is an extract of our Chosing Trustee V Fiscal Agent Managers Clearing Systems Ws 8 Task 2 document, which we sell as part of our Finance and Capital Markets Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.
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WS8 - TASK 2
1. Outline the differences between a trustee and a fiscal agent and advise which would be best for Alexandria. Explain whether Christine is right or not, giving your reasons.
CHOOSING BETWEEN A TRUSTEE AND A FISCAL AGENCY (CAN'T HAVE BOTH) Technically you could have both but this would involve unnecessary fees, duplication of roles and extra administrative load. where security is not offered and there are no subordination issues, a Fiscal Agent will usually be the best option for the issuer
TRUSTEE WHO APPOINTS THEM
DUTY OWED TO?
Appointed by Issuer Owed under common law and contract (via the trust deed) to the Bondholders More Expensive as will have to hire a specialist Trust Co. - will also need to pay for a Paying AgentWHAT IS THEIR ROLE??
SUBORDINAT ED ISSUES ADVANTAGE S TO THE BH's "suing"Holds on trust for the benefit of the BH the issuer's covenant to pay the BH Has investigative and monitoring powers, even if these are not duties spelled out in the trust deed, the duty to act in the interests of the BH means that he will look at the issuer's accounts/info available from the Co. if has any power to do so. Holds security on trust from time to time for all BHs from time to time. Stops impracticality of individual BHs holding it & it passing hands when bond was sold (could restart 'hardening period') Same trustee may be appointed to both senior & junior issues to ensure effective subordination Common to achieve subordination contractually through T&Cs of issue creating 'contingent debt'
FISCAL AGENT Appointed by issuer (it is the issuer's representative and agent) Owed to issuer (via Fiscal Agency Agreement) Cheaper as there are more banks willing to act as Agents - "en plus" the Fiscal Agent also performs role of Paying Agent (pay once only)?Responsible for payment of capital and interest to the bondholder. Publishes notices to BH and acts as depository for accounts. Has no investigative or monitoring powers. Owes no duty to BH to review or asses the issuer's accounts and info.
Can't hold security on trust for BHs as he is agent of the issuer and thus acts in the issuer's interests.
Need different agents for senior &
junior issues to ensure effective subordination
In event of default?
The trustee is looking after the Bondholder If BHs have a trustee they will have someone to professionally deal with the default in their behalf. The trustee can bring an action on behalf of all the BH's and this may be cheaper, quicker and easier from the BH point of view. But if the Trustee doesn't want to sue, then there is a problem.
BDF - WS8 - TASK 2
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