Why Do the Issuers of Bonds Not Seek to Minimise

question 26

Multiple Choice

Why do the issuers of bonds not seek to minimise the strength and number of covenants in a bond agreement?

• A) Covenants favor the equity holders that managers work for.
• B) Covenants lower the interest rate investors will require to buy the bond.
• C) Covenants force the company to renegotiate the terms of the bond if they are broken.
• D) Covenants can increase the flexibility of the company issuing the bond.

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Definitions:

Rehabilitation

The process of seeking to improve a person's condition or behavior, often in the context of recovery from addiction or reintroduction into society after imprisonment.

Incapacitation

A strategy intended to prevent crime by detaining or otherwise restricting the mobility of individuals deemed to be a threat to society.

Deterrence

A strategy aimed at discouraging or preventing specific actions or behaviors by invoking fear of consequences or punishment.

Political Consequence

The effect or outcome that political action, decision, or policy has on an individual, community, or system.