Which of the Following Statements Is FALSE

question 42

Multiple Choice

Which of the following statements is FALSE?

• A)When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a 'subordinated debenture'.
• B)In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off.
• C)Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the 'bond's seniority', is important.
• D)Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt.

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