The written agreement between a corporation and its bondholders contains a limitation on the dividends that the corporation can pay. This limitation is:
A) a nonrecourse covenant.
B) a recourse covenant.
C) a negative covenant.
D) a positive covenant.

Question

Quizplus · Accepted Answer

A negative covenant in a bond agreement restricts the issuer from undertaking certain actions, such as limiting the amount of dividends it can pay to shareholders, to protect the interests of the bondholders.

The Written Agreement Between a Corporation and Its Bondholders Contains