With regard to covenants, who benefits the fine print in a bond contract when the firm gets

into financial trouble? The answer is that the bondholders may benefit; the fine print limits

actions that transfer wealth from the bondholders to the stockholders.

Now the question!

With regard to covenants, who benefits from the fine print when bonds are issued?

Suppose the firm is offered a choice of issuing a$)$ a bond with standard restrictions on

dividend payout additional borrowing and so on$,$ or b$)$ a bond with minimal restrictions but a

higher interest rate. Suppose interest rates for $a)$ and b$)$ are fair from the viewpoint of

lenders. Which bond would you expect the firm to issue.?