Which of the following is NOT a typical negative bond covenant?

Question

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Negative bond covenants are designed to protect bondholders by limiting the actions of the borrower that could undermine the firm's financial stability or the bond's value. A typical negative covenant might restrict dividend payments, mergers, additional debt issuance, or pledging assets to other lenders to ensure the company maintains a certain level of financial health and does not undertake excessive risk that could jeopardize its ability to repay the bondholders. However, a covenant that prevents a firm's bond rating from falling below its initial level is not typical because bond ratings are determined by external agencies and can fluctuate based on a variety of factors beyond the firm's immediate control, such as changes in the economic environment or industry-specific risks.

Which of the Following Is NOT a Typical Negative Bond