Definition of Equipment Trust Certificate

An Equipment Trust Certificate is a bond issued by a corporate and backed by a pledge of large equipment, such as airplanes, railroad cars, and ships.

Applying "Equipment Trust Certificate" to Securities Exams:

Often when a corporation that engages in transportation or large construction needs to purchase equipment the corporation will borrow the money through the sale of bonds. The title to the large equipment (airplanes, railroad cars or large cranes) will be pledged as collateral for the bonds. The trustee will hold the title to the equipment and the bonds will be scheduled to be paid off at a rate that is faster than the depreciation of the equipment backing the bonds. It is important to note that if you see a question on your exam relating to equipment trust certificates, you should know that they are never backed by a pledge of a fleet of cars. Cars depreciate too quickly to be adequate collateral.

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