Which of the following best describes a negative bond covenant? The requirement to:
A) insure and maintain assets.
B) comply with all laws and regulations.
C) maintain a minimum interest coverage ratio.

Question

Quizplus · Accepted Answer

A negative bond covenant restricts the actions that an issuer can take, and in this case, the requirement to maintain a minimum interest coverage ratio restricts the issuer's ability to take actions that may result in a decrease in interest coverage, such as increasing debt or reducing earnings. Both choice A and B describe positive bond covenants that require the issuer to take certain actions, rather than restrict them.

Which of the Following Best Describes a Negative Bond Covenant