Asked by Trinity Honaker on Jul 07, 2024
Verified
Parts of the indenture limiting certain actions that might be taken during the term of the loan (usually to protect the interests of the lender) are called:
A) Trustee relationships.
B) Sinking funds provisions.
C) Bond ratings.
D) Deferred call provisions.
E) Protective covenants.
Protective Covenants
Clauses in a loan agreement that limit certain actions of the borrower to protect the lender, ensuring the borrower's ability to repay the debt.
Indenture
Written agreement between the corporation and the lender detailing the terms of the debt issue.
Loan Term
The duration of time over which a loan agreement is in effect, dictating the repayment schedule.
- Understand the safeguards for bond investors, such as sinking funds and protective covenants.
- Grasp the implications of bond indentures and their protective covenants for both issuers and bondholders.
Verified Answer
DS
deepakshi saggarJul 11, 2024
Final Answer :
E
Explanation :
Protective covenants are specific agreements in the bond indenture that limit the actions of the borrower to protect the interests of the lender. These can include restrictions on paying dividends, taking on additional debt, or selling assets.
Learning Objectives
- Understand the safeguards for bond investors, such as sinking funds and protective covenants.
- Grasp the implications of bond indentures and their protective covenants for both issuers and bondholders.