THERE'S AN OLD story of a traveller seeking directions from a local man. After much thought, the local replies: "To get where you want to go, I wouldn't start from here."
It's a joke frequently repeated when discussing bond trustees. Stephen Norton, chairman of the loan capital committee of The Association of Corporate Trustees (TACT) and director of marketing at Law Debenture Trust Corporation, makes the point.
"If you were starting with a blank piece of paper and designing a system to accommodate trustee functions, you wouldn't have what you have now," he says. "A company issues bonds, that company appoints the trustee, it pays the trustee's fee, but the trustee's duty is to the bondholders."
Tensions between bondholders and issuers in Europe, controversy in the US, and pressure on fees, are forcing the debt capital markets to rethink the bond trustee's role. Quite simply, bondholders are asking trustees to do more but issuers aren't willing to pay them more to do it.
Trustees increasingly occupy a key position when bondholders and issuers fall out. One bondholder-issuer tussle that has just spotlighted the trustee's role enveloped the UK's first whole business securitization.