Bondholders may have great difficulty in ascertaining whether the issuer has been fulfilling its obligations specified in the indenture. The indenture is thus made out to a third-party trustee as a representative of the interests of the bondholders -- a trustee acts in a fiduciary capacity for bondholders.

In an indenture there are:

• Affirmative covenants. They set forth certain actions that the borrowers must take, such as:
  • Paying interest and principal on a timely basis;
  • Paying taxes and other claims when due;
  • Keeping assets in good conditions and in working order;
  • Submitting periodic reports to a trustee so the trustee can evaluate the issuer's compliance with the indenture.

• Negative covenants. They set forth certain limitations and restrictions on the borrower's activities, such as:
  • Limitations on the borrower's ability to incur additional debt unless certain tests are met;
  • Limitations on dividend payments and stock repurchases;
  • Limitations on sale of assets.