The purpose of debt covenants is to:

Question

Quizplus · Accepted Answer

Debt covenants are restrictions that lenders impose on borrowers to mitigate the risk of default. These restrictions can prohibit borrowers from engaging in certain risky behaviors that may harm their ability to repay the loan. For example, a lender may prohibit a borrower from taking on additional debt, paying dividends, or selling assets without permission. By imposing these restrictions, lenders can reduce the risk of default and protect their investment. The other options listed (B, C, and D) are not the primary purpose of debt covenants.

The Purpose of Debt Covenants Is To