A bond indenture clause that prohibits a company from issuing new debt that has seniority over current debt is the _________ clause.

Question

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The clause that prohibits a company from issuing new debt that has seniority over current debt is known as the negative pledge clause. This clause is designed to protect bondholders from the company's ability to issue new debt that would supersede their existing debts, which would ultimately lower their priority of payment at the time of bankruptcy or liquidation.

A Bond Indenture Clause That Prohibits a Company from Issuing