An example of a negative covenant that might be found in a bond indenture is a statement that the company:

Question

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A negative covenant places restrictions on the actions or activities of the issuer. Choice B states that the company cannot lease any major assets without bondholder approval, thus limiting its ability to dispose of assets and reduce its ability to pay back bondholders. Choices A, C, D, and E are examples of positive covenants, which are promises by the company to take specific actions or to maintain certain financial ratios, and are not applicable to this question.

An Example of a Negative Covenant That Might Be Found