Interpreting Bond Footnote Disclosures

Netflix reports the following information from the Management Discussion and Analysis section of its 2018 10-K.

The Notes include, among other terms and conditions, limitations on the Companys ability to create, incur or allow certain liens; enter into sale and leaseback transactions; create, assume, incur or guarantee additional indebtedness of certain of the Companys subsidiaries; and con solidate or merge with, or convey, transfer or lease all or substantially all of the Companys and its subsidiaries assets, to another person. As of December 31, 2018 and December 31, 2017, the Company was in compliance with all related covenants.

a. The operating and financing restrictions that Netflix reports are similar to those discussed in the section on credit ratings and the cost of debt. What effects might these covenants have on the degree of freedom that management has in running Netflix?

b. What pressures might management face if the companys ratios are near covenant limits?