Subordination Clauses in Bond Indentures

question 16

Multiple Choice

Subordination clauses in bond indentures

• A) may restrict the amount of additional borrowing the firm can undertake.
• B) are always bad for investors.
• C) provide higher priority to senior creditors in the event of bankruptcy.
• D) may restrict the amount of additional borrowing the firm can undertake and provide higher priority to senior creditors in the event of bankruptcy.
• E) All of the options are true.

---

Definitions:

Tributaries

Smaller rivers or streams that flow into a larger river or lake, contributing to its overall water volume.

Sediment

Particulate organic and inorganic material that settles at the bottom of a liquid, often transported by water, wind, or ice.

Discharge

The flow rate of water from a given source, such as a river or aquifer, typically measured in volume per unit time.

Low-Gradient Stream

A stream with a gentle slope that typically has slower water velocity and can form wide meanders, floodplains, and deposits of sediments along its course.