Which one of these is most related to a positive covenant?
A)Limiting the amount of the firm's dividends
B)Avoiding a merger while a debt remains unpaid
C)Furnishing financial statements to the firm's lenders
D)Not issuing any additional long-term debt
E)Not selling any major assets without lender approval

Question

Quizplus · Accepted Answer

Furnishing financial statements to the firm's lenders is a positive covenant because it requires the firm to take proactive steps to keep its lenders informed about its financial condition, which ultimately serves to reassure lenders and reduce their risk. The other options listed (limiting dividends, avoiding mergers, not issuing additional debt, and obtaining lender approval before selling assets) are all examples of negative covenants, which prohibit the firm from taking certain actions that could increase the risk to lenders.

Which One of These Is Most Related to a Positive