All else the same, bondholder claims on the cash flows of the firm will tend to increase with decreases in the debt/equity ratio?

Question

Quizplus · Accepted Answer

Bondholder claims on the cash flows of the firm are related to the amount of debt a firm has issued, not directly to the debt/equity ratio. Decreasing the debt/equity ratio often involves reducing debt or increasing equity, which would not increase bondholders' claims on cash flows; it might actually reduce the total amount of debt outstanding, thereby potentially reducing bondholders' claims.

All Else the Same, Bondholder Claims on the Cash Flows