Policies that limit the discretion of managers as a way of protecting bondholders' interests are called

Question

Quizplus · Accepted Answer

Restrictive covenants are policies written into bond indentures or loan agreements that limit the discretion of managers in order to protect the interests of bondholders. These covenants may include restrictions on additional borrowings, asset sales, and dividend payouts, among others. Therefore, A) is the correct choice. B) is incorrect because debentures refer specifically to unsecured bonds. C) is incorrect because sinking funds are separate accounts set up by issuers to accumulate funds for the retirement of bonds. D) is only partially correct because bond indentures may include other provisions beyond restrictive covenants.

Policies That Limit the Discretion of Managers as a Way