2.4.9 Fiduciary Rights and Duties

The fiduciaries in public agency debt transactions are independent parties such as trustees, paying agents, tender agents, and remarketing agents, with duties running to the public agency and/or debt holders. The fiduciary provisions in bond documents set forth the qualification requirements for fiduciaries and the terms of their appointment.

Bond trustees are generally required to have trust powers and minimum amounts of capitalization. They are generally appointed by the public agency issuer and can be removed by the issuer as long as no event of default has occurred. The effectiveness of any removal or resignation may be conditioned upon acceptance by a new trustee. A bond trustee’s duties are generally as follows:

Before an event of default occurs, the trustee is required to perform the express duties set forth in the bond documents. These generally relate to (1) the receipt, holding, and disbursement of funds; (2) the investment of trustee held funds (usually as directed by the issuer); and (3) the evaluation and approval, if warranted, of requested consents and amendments.
After an event of default occurs, the trustee is generally required to act to protect the interests of bondholders under a prudent person standard of care.

Bond trustees are only responsible for their own negligence or willful misconduct, are indemnified by the issuer or borrower, and are not required to risk their own funds. Trustees are also generally entitled to rely on the advice of counsel and on factual certifications made by the issuer.

Paying agents, tender agents and remarketing agents are required to perform specified duties in accordance with professional standards.