Any capital-markets issue that is collateralized will tend to have an independent third-party trustee as holder of the security. This is a simple structure that originated in the common law (the Anglo-Saxon systems found in the UK, the former British Commonwealth and the US) and has been harnessed elsewhere, such as Scandinavia and the Middle East (see last month's Financial Lawyer). But, hitherto, unsecured plain-vanilla issues have tended to be done without inserting a trustee structure, but with a fiscal agent instead. This has the merit of economy, since the fiscal agent tends to be the principal paying agent and the combined cost forms part of the pricing package put to the issuer. However, the benefits of using a trustee are being increasingly recognized, not least because of its legal standing within the issue structure.
Unlike a fiscal agent, which is the issuer's agent and has no contractual duty to the bondholders, the trustee is appointed by the issuer but its principal duty is owed to the bondholders. The trust deed sets out the degree of discretion with which the trustee is vested. Clever borrowers will allow the trustee a wide discretion. This is because the trustee is able to deal with many of the issues that would otherwise require a meeting of the bondholders.