What is an Equipment Trust Bond? A Comprehensive Legal Overview

Q: How does an equipment trust bond work?

The bond is secured by the equipment, which is leased to the issuer. Once the debt is paid, the title transfers to the issuer.

Q: Who can issue an equipment trust bond?

Primarily transportation companies, but smaller businesses can also issue them if they meet certain criteria.

Q: Are equipment trust bonds the same as secured loans?

No, while both are secured by assets, equipment trust bonds are specifically structured for bondholders and involve leasing arrangements.

Definition & meaning

An equipment trust bond is a type of bond that is secured by tangible assets, such as airplanes, machinery, or other physical property. Typically issued by transportation companies like railroads or shipping lines, these bonds help secure payment to the bondholders. The equipment is held in trust by a trustee, who retains the title to the assets while leasing them to the issuer. Once the debt is fully paid, the title of the equipment is transferred to the issuer, making it their property. Equipment trust bonds may also be referred to as equipment trust certificates.

Table of content

Legal use & context

Equipment trust bonds are primarily used in the transportation sector, where companies need to finance the purchase of expensive equipment. In legal practice, they may be relevant in areas such as corporate finance, securities regulation, and bankruptcy. Users can manage some aspects of these bonds through legal templates available from services like US Legal Forms, which provide resources drafted by qualified attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A railroad company issues an equipment trust bond to finance the purchase of new locomotives. The locomotives serve as collateral for the bond, and the company leases them while making payments to bondholders.

Example 2: A shipping line issues an equipment trust certificate to acquire new cargo ships. The certificate secures the bondholders' investment until the shipping line repays the debt, at which point the title of the ships is transferred to the company. (hypothetical example)

Comparison with related terms

Term	Description	Difference
Equipment Trust Bond	A bond secured by tangible assets, primarily used by transportation companies.	Specifically tied to physical assets and leasing arrangements.
Secured Bond	A bond backed by collateral to reduce the risk for bondholders.	Can apply to various industries, not limited to transportation.
Lease Financing	A method of obtaining the use of equipment without purchasing it outright.	Does not involve bond issuance or security for investors.

Common misunderstandings

What to do if this term applies to you

If you are considering issuing or investing in an equipment trust bond, it is important to understand the terms and conditions involved. You may want to consult with a legal professional to ensure compliance with relevant regulations. Additionally, US Legal Forms offers templates that can help you manage the documentation related to equipment trust bonds effectively.

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Quick facts

Attribute	Details
Typical Issuer	Transportation companies
Secured By	Tangible assets (e.g., airplanes, machinery)
Common Use	Financing equipment purchases
Title Transfer	Occurs after debt repayment

Key takeaways

FAQs

What is an equipment trust bond?

An equipment trust bond is a bond secured by tangible assets, typically issued by transportation companies to finance equipment purchases.