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Simple English definitions for legal terms
car trust certificate
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A quick definition of car trust certificate:
Term: Car Trust Certificate
Definition: A car trust certificate is a type of security that is typically issued by a railroad company to finance the purchase of new equipment. The certificate is held by a trustee until the note has been paid off, and during this time, the title to the equipment is also held by the trustee. Essentially, it is a way for a company to borrow money to buy equipment while using that equipment as collateral.
A more thorough explanation:
Definition: A car trust certificate, also known as an equipment trust certificate, is a type of security that is typically issued by a railroad company to finance the purchase of new equipment. The certificate represents a debt obligation and is backed by the equipment itself. The title to the equipment is held by a trustee until the certificate has been fully paid off.
Example: For example, if a railroad company needs to purchase new locomotives, it may issue car trust certificates to investors to raise the necessary funds. The investors would then receive regular interest payments until the certificate matures and the principal is repaid.
Explanation: The example illustrates how a car trust certificate works in practice. The railroad company is able to finance the purchase of new equipment without having to use its own capital, while investors are able to earn a return on their investment. The equipment itself serves as collateral for the certificate, providing security for investors in case the railroad company defaults on its payments.