Indenture Drafting for a Rule 144A/Regulation S Issuance

This practice note discusses drafting considerations for an indenture governing debt securities issued in a Rule 144A/Regulation S transaction, with a focus on covenants and transfer restrictions. An indenture is a contract between an issuer of securities and a trustee that defines the terms of the debt securities and the duties of each party. The indenture should be reviewed for compliance with the Trust Indenture Act of 1939 (TIA), which governs indentures, and the offering memorandum, which describes the securities. The covenants are intended to protect the interests of debtholders by limiting the activities of the issuer that may affect its ability to repay the debt. The covenants vary depending on the credit rating of the issuer and the debt and are typically more restrictive for high yield debt than for investment grade debt. The transfer restrictions are imposed by the federal securities laws and limit the resale of the securities to certain types of investors and under certain conditions. The indenture may also provide for an exchange offer, where the issuer replaces the restricted securities with freely-transferable securities.