15 U.S.C. § 77nnn — Reports by obligor; evidence of compliance with indenture provisions

submitted 93 years ago by ch. 38 to r/title-15-COMMERCE-AND-TRADE · 2,292 words · no verdicts yet

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Companies that issue bonds must regularly send reports to the trustee and SEC about their finances and compliance. They must also prove they've properly recorded the mortgage and met the indenture's conditions. Experts must certify certain releases and property values.

(a) Periodic reports Every obligor on the bonds must: (1) file with the trustee copies of the annual reports and other information, documents, and reports (or the portions of them the SEC's rules specify) the obligor must file with the SEC under section 78m or 78o(d); or, if the obligor isn't required to file under either section, instead file with the trustee and the SEC, under SEC rules, whatever supplementary and periodic information, documents, and reports section 78m would require for an exchange-listed security, as those rules prescribe; (2) file with the trustee and the SEC, under SEC rules, additional information, documents, and reports about the obligor's compliance with the indenture's conditions and covenants — including, for annual reports where required, certificates or opinions of independent public accountants meeting subsection (e)'s requirements, for compliance items accountants can verify — except no certificate or opinion is required for the specific matters described in subsection (c)(3)(A), (B), or (C); (3) send bondholders, in the manner section 77mmm(c) describes, summaries of the reports required under (1) or (2), as SEC rules require; and (4) give the trustee, at least once a year, a brief certificate from the obligor's principal executive, financial, or accounting officer, based on that officer's knowledge, about the obligor's compliance with all the indenture's conditions and covenants — determined without regard to any grace period or notice requirement in the indenture. Rules the SEC prescribes under this subsection must be necessary or appropriate in the public interest or to protect investors, taking into account the type of indenture, the nature of the obligor's business, the amount of bonds outstanding, and — for rules issued after an indenture already qualified — the added cost of complying. These rules may be issued before or after an indenture's qualification takes effect. (b) Proof the indenture is properly recorded If the indenture is or will be secured by a mortgage or pledge of property, the obligor must give the trustee: (1) promptly after signing the indenture, a lawyer's opinion (the lawyer may work for the obligor) either stating that the indenture has been properly recorded and filed to make the intended lien effective, with details of what was done, or stating that no such action is necessary; and (2) at least once a year after that, a similar lawyer's opinion about whatever recording, filing, re-recording, or refiling has been done to keep the lien effective, with details, or a statement that none is necessary. (c) Proof that conditions have been met The obligor must give the trustee evidence of compliance with any conditions precedent in the indenture — including covenants that function as conditions precedent — relating to issuing bonds, releasing or substituting mortgaged property, discharging the indenture, or any other action the trustee is asked to take at the obligor's request. This evidence must include: (1) certificates or opinions from company officers named in the indenture, stating the conditions have been met; (2) a lawyer's opinion (the lawyer may work for the obligor) that the conditions have been met; and (3) for conditions accountants can verify (such as financial ratios, net quick assets, or negative-pledge clauses), a certificate or opinion from an accountant — who must be an independent public accountant chosen or approved by the trustee using reasonable care, if the newly authenticated bonds this year, combined with earlier ones this calendar year, total 10% or more of all outstanding bonds; but no certificate or opinion beyond that of a named company officer or employee is required for (A) periods not covered by required annual reports, (B) the amount and value of property additions, except as covered in subsection (d)(3), or (C) whether depreciation, maintenance, or repairs were adequate. (d) Certificates of fair value If the indenture is or will be secured by mortgaged property or securities, the obligor must give the trustee an engineer's, appraiser's, or other expert's certificate or opinion on fair value for: (1) property or securities being released from the lien — the certificate or opinion must say the release won't impair the indenture's security in violation of its terms, and must come from an independent expert if this release, combined with all others so far that calendar year, totals 10% or more of outstanding bond principal (as shown in these certificates); no independent certificate is needed if the release's fair value is under $25,000 and under 1% of outstanding bond principal; (2) securities (other than these bonds, or securities secured ahead of this indenture's lien) being deposited with the trustee as the basis for authenticating new bonds, withdrawing trust-estate cash, or releasing mortgaged property — again requiring an independent expert once the cumulative fair value for the year hits the 10% threshold, and in the case of authenticating bonds, covering all such deposits made that calendar year not already independently certified; no independent certificate needed under the same $25,000-or-1% floor; and (3) property being made subject to the lien as the basis for authenticating new bonds, withdrawing trust-estate cash, or releasing mortgaged property — with the same independent-expert trigger, plus a special rule: if (A) the property was used or operated by someone other than the obligor within the six months before the obligor acquired it, and (B) its fair value is at least $25,000 and at least 1% of outstanding bond principal, the certificate must come from an independent expert and, for bond authentication, must cover all similar property added that calendar year not already independently certified. The indenture is automatically treated as letting an authorized company officer or employee make these certificates or opinions, except where this subsection specifically requires an independent expert — in which case the expert must be chosen or approved by the trustee using reasonable care. (e) What every certificate or opinion must state Each certificate or opinion about compliance with an indenture condition or covenant (other than the annual officer certificate under (a)(4)) must include: (1) a statement that the person making it has read the relevant covenant or condition; (2) a brief statement of the nature and scope of the examination or investigation behind it; (3) a statement that the person believes they investigated enough to form an informed opinion; and (4) a statement of whether, in that person's opinion, the condition or covenant has been complied with. (f) Parties may require additional evidence Nothing in this section requires the indenture to include provisions demanding more evidence of compliance than this section specifies, and nothing here prevents the parties from agreeing to include such additional provisions if they choose.

the actual law source: uscode.house.gov ↗public domain

(a) Periodic reports

Each person who, as set forth in the registration statement or application, is or is to be an obligor upon the indenture securities covered thereby shall—

(1)

file with the indenture trustee copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which such obligor is required to file with the Commission pursuant to section 78m or 78o(d) of this title; or, if the obligor is not required to file information, documents, or reports pursuant to either of such sections, then to file with the indenture trustee and the Commission, in accordance with rules and regulations prescribed by the Commission, such of the supplementary and periodic information, documents, and reports which may be required pursuant to section 78m of this title, in respect of a security listed and registered on a national securities exchange as may be prescribed in such rules and regulations;

(2)

file with the indenture trustee and the Commission, in accordance with rules and regulations prescribed by the Commission, such additional information, documents, and reports with respect to compliance by such obligor with the conditions and covenants provided for in the indenture, as may be required by such rules and regulations, including, in the case of annual reports, if required by such rules and regulations, certificates or opinions of independent public accountants, conforming to the requirements of subsection (e) of this section, as to compliance with conditions or covenants, compliance with which is subject to verification by accountants, but no such certificate or opinion shall be required as to any matter specified in clauses (A), (B), or (C) of paragraph (3) of subsection (c);

(3)

transmit to the holders of the indenture securities upon which such person is an obligor, in the manner and to the extent provided in subsection (c) of section 77mmm of this title, such summaries of any information, documents, and reports required to be filed by such obligor pursuant to the provisions of paragraph (1) or (2) of this subsection as may be required by rules and regulations prescribed by the Commission; and

(4)

furnish to the indenture trustee, not less often than annually, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of such obligor’s compliance with all conditions and covenants under the indenture. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under the indenture.

The rules and regulations prescribed under this subsection shall be such as are necessary or appropriate in the public interest or for the protection of investors, having due regard to the types of indentures, and the nature of the business of the class of obligors affected thereby, and the amount of indenture securities outstanding under such indentures, and, in the case of any such rules and regulations prescribed after the indentures to which they apply have been qualified under this subchapter, the additional expense, if any, of complying with such rules and regulations. Such rules and regulations may be prescribed either before or after qualification becomes effective as to any such indenture.

(b) Evidence of recording of indenture

If the indenture to be qualified is or is to be secured by the mortgage or pledge of property, the obligor upon the indenture securities shall furnish to the indenture trustee—

(1)

promptly after the execution and delivery of the indenture, an opinion of counsel (who may be of counsel for such obligor) either stating that in the opinion of such counsel the indenture has been properly recorded and filed so as to make effective the lien intended to be created thereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make such lien effective; and

(2)

at least annually after the execution and delivery of the indenture, an opinion of counsel (who may be of counsel for such obligor) either stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, re-recording, and refiling of the indenture as is necessary to maintain the lien of such indenture, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien.

The obligor upon the indenture securities shall furnish to the indenture trustee evidence of compliance with the conditions precedent, if any, provided for in the indenture (including any covenants compliance with which constitutes a condition precedent) which relate to the authentication and delivery of the indenture securities, to the release or the release and substitution of property subject to the lien of the indenture, to the satisfaction and discharge of the indenture, or to any other action to be taken by the indenture trustee at the request or upon the application of such obligor. Such evidence shall consist of the following:

(1)

certificates or opinions made by officers of such obligor who are specified in the indenture, stating that such conditions precedent have been complied with;

(2)

an opinion of counsel (who may be of counsel for such obligor) stating that in his opinion such conditions precedent have been complied with; and

(3)

in the case of conditions precedent compliance with which is subject to verification by accountants (such as conditions with respect to the preservation of specified ratios, the amount of net quick assets, negative-pledge clauses, and other similar specific conditions), a certificate or opinion of an accountant, who, in the case of any such conditions precedent to the authentication and delivery of indenture securities, and not otherwise, shall be an independent public accountant selected or approved by the indenture trustee in the exercise of reasonable care, if the aggregate principal amount of such indenture securities and of other indenture securities authenticated and delivered since the commencement of the then current calendar year (other than those with respect to which a certificate or opinion of an accountant is not required, or with respect to which a certificate or opinion of an independent public accountant has previously been furnished) is 10 per centum or more of the aggregate amount of the indenture securities at the time outstanding; but no certificate or opinion need be made by any person other than an officer or employee of such obligor who is specified in the indenture, as to (A) dates or periods not covered by annual reports required to be filed by the obligor, in the case of conditions precedent which depend upon a state of facts as of a date or dates or for a period or periods different from that required to be covered by such annual reports, or (B) the amount and value of property additions, except as provided in paragraph (3) of subsection (d), or (C) the adequacy of depreciation, maintenance, or repairs.

(d) Certificates of fair value

If the indenture to be qualified is or is to be secured by the mortgage or pledge of property or securities, the obligor upon the indenture securities shall furnish to the indenture trustee a certificate or opinion of an engineer, appraiser, or other expert as to the fair value—

(1)

of any property or securities to be released from the lien of the indenture, which certificate or opinion shall state that in the opinion of the person making the same the proposed release will not impair the security under such indenture in contravention of the provisions thereof, and requiring further that such certificate or opinion shall be made by an independent engineer, appraiser, or other expert, if the fair value of such property or securities and of all other property or securities released since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this paragraph, is 10 per centum or more of the aggregate principal amount of the indenture securities at the time outstanding; but such a certificate or opinion of an independent engineer, appraiser, or other expert shall not be required in the case of any release of property or securities, if the fair value thereof as set forth in the certificate or opinion required by this paragraph is less than $25,000 or less than 1 per centum of the aggregate principal amount of the indenture securities at the time outstanding;

(2)

to such obligor of any securities (other than indenture securities and securities secured by a lien prior to the lien of the indenture upon property subject to the lien of the indenture), the deposit of which with the trustee is to be made the basis for the authentication and delivery of indenture securities, the withdrawal of cash constituting a part of the trust estate or the release of property or securities subject to the lien of the indenture, and requiring further that if the fair value to such obligor of such securities and of all other such securities made the basis of any such authentication and delivery, withdrawal, or release since the commencement of the then current calendar year, as set forth in the certificates or opinions required by this paragraph, is 10 per centum or more of the aggregate principal amount of the indenture securities at the time outstanding, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert and, in the case of the authentication and delivery of indenture securities, shall cover the fair value to such obligor of all other such securities so deposited since the commencement of the current calendar year as to which a certificate or opinion of an independent engineer, appraiser, or other expert has not previously been furnished; but such a certificate of an independent engineer, appraiser, or other expert shall not be required with respect to any securities so deposited, if the fair value thereof to such obligor as set forth in the certificate or opinion required by this paragraph is less than $25,000 or less than 1 per centum of the aggregate principal amount of the indenture securities at the time outstanding; and

(3)

to such obligor of any property the subjection of which to the lien of the indenture is to be made the basis for the authentication and delivery of indenture securities, the withdrawal of cash constituting a part of the trust estate, or the release of property or securities subject to the lien of the indenture, and requiring further that if

(A)

within six months prior to the date of acquisition thereof by such obligor, such property has been used or operated, by a person or persons other than such obligor, in a business similar to that in which it has been or is to be used or operated by such obligor, and

(B)

the fair value to such obligor of such property as set forth in such certificate or opinion is not less than $25,000 and not less than 1 per centum of the aggregate principal amount of the indenture securities at the time outstanding,

such certificate or opinion shall be made by an independent engineer, appraiser, or other expert and, in the case of the authentication and delivery of indenture securities, shall cover the fair value to the obligor of any property so used or operated which has been so subjected to the lien of the indenture since the commencement of the then current calendar year, and as to which a certificate or opinion of an independent engineer, appraiser, or other expert has not previously been furnished.

The indenture to be qualified shall automatically be deemed (unless it is expressly provided therein that such provision is excluded) to provide that any such certificate or opinion may be made by an officer or employee of the obligor upon the indenture securities who is duly authorized to make such certificate or opinion by the obligor from time to time, except in cases in which this subsection requires that such certificate or opinion be made by an independent person. In such cases, such certificate or opinion shall be made by an independent engineer, appraiser, or other expert selected or approved by the indenture trustee in the exercise of reasonable care.

(e) Recitals as to basis of certificate or opinion

Each certificate or opinion with respect to compliance with a condition or covenant provided for in the indenture (other than certificates provided pursuant to subsection (a)(4) of this section) shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

(f) Parties may provide for additional evidence

Nothing in this section shall be construed either as requiring the inclusion in the indenture to be qualified of provisions that the obligor upon the indenture securities shall furnish to the indenture trustee any other evidence of compliance with the conditions and covenants provided for in the indenture than the evidence specified in this section, or as preventing the inclusion of such provisions in such indenture, if the parties so agree.

Source credit: (May 27, 1933, ch. 38, title III, § 314, as added Aug. 3, 1939, ch. 411, 53 Stat. 1167; amended Pub. L. 101–550, title IV, § 413, Nov. 15, 1990, 104 Stat. 2729.)

history & why it existsrecord from the source credit

1933Enacted · Act of May 27, 1933, ch. 38 · 53 Stat. 1167
1990Amended · Pub. L. 101-550 · 104 Stat. 2729

A history note hasn’t been published yet. The record shows enactment by ch. 38 on 1933-05-27.

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