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ondholders often employ a variety of devices including restrictive covenants in the company s bond indenture agreements to protect their interests and constrain the actions
ondholders often employ a variety of devicesincluding restrictive covenants in the companys bond indenture agreementsto protect their interests and constrain the actions of shareholders and the firms managers.
Which of the following are restrictive covenants often used to protect the firms bond value and bondholder wealth? Check all that apply.
Provisions that limit issuing new debt securities
Provisions that limit the type of investments or divestments that the firm can undertake
Provisions that require issuing new debt securities whenever interest rates drop below
Provisions that prohibit borrowing funds to pay dividends
In addition, potential bondholders may require a interest rate on the firms soontobeissued bond as compensation for the risks that cannot be adequately protected against using the restrictive covenants.
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