The Primary Purpose of Protective Covenants Is to

question 116

Multiple Choice

The primary purpose of protective covenants is to

• A) Allows the company to repurchase the bond at a specific price.
• B) Outline the responsibilities of both the bond issuer and the bond holders.
• C) Protect bondholders from company actions that may endanger a bond's credit quality.
• D) Reduce the volatility of its price.
• E) All of the above.

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Definitions:

Shelf Prospectus

Frequently, companies will file a prospectus and then update it with a short-form prospectus just before an offering. This procedure is termed a shelf prospectus because companies put new securities “on the shelf” and then later sell them when the market is right.

Prospectus Supplement

A document that provides additional information to a prospectus, detailing specifics about an investment offering for potential investors.

Tender Offer

The offer of one firm to buy the stock of another by going directly to the shareholders, frequently over the opposition of the target company’s management.

Private Placement

Private Placement is a method of raising capital through the sale of securities to a relatively small number of select investors rather than through a public offering.