Which of the following is true of debt covenants?

I. Limit the issuance of additional debt senior to the obligation.
II. Specify minimum levels of selected financial ratios.
III. Specify minimum levels of earnings coverage.
IV. Prohibit excessive dividends or stock repurchases.

A)II and III
B)II and IV
C)I, III, and IV
D)I, II, III, and IV

Question

Which of the following is true of debt covenants?

I. Limit the issuance of additional debt senior to the obligation.
II. Specify minimum levels of selected financial ratios.
III. Specify minimum levels of earnings coverage.
IV. Prohibit excessive dividends or stock repurchases.

A)II and III
B)II and IV
C)I, III, and IV
D)I, II, III, and IV

Quizplus · Accepted Answer

All of the statements are true of debt covenants. Debt covenants are agreements included in a loan contract that place restrictions on the borrower to ensure that certain financial metrics are met, reducing the lender's risk of default. These metrics may include financial ratios, earnings coverage, and limitations on additional debt or shareholder payouts.

Which of the Following Is True of Debt Covenants