Which of the following is true concerning bond covenants?
A)Bond covenants are restrictions placed on bondholders to protect rights of equity holders.
B)Violation of a bond covenant requires that a company declares bankruptcy.
C)If a company violates a bond covenant, it means it has failed to make interest or principal repayments on debt in a timely manner.
D)Bond covenants are legal restrictions placed in order to minimize the risk of default on bonds.

Question

Quizplus · Accepted Answer

Bond covenants are legal restrictions placed on issuers to minimize the risk of default on bonds. They can include restrictions on dividend payments, additional borrowing, and changes in ownership, among others. Violation of a bond covenant may lead to penalties or acceleration of repayment, but it does not necessarily require bankruptcy. Bond covenants protect the rights of bondholders, not equity holders.

Which of the Following Is True Concerning Bond Covenants