Question

Protective covenants: Group of answer choices a.only apply to bonds that have a deferred call provision. b.are primarily designed to protect bondholders. c.apply to short-term debt issues but not to long-term debt issues. d.only apply to privately issued bonds. are a feature found only in government-issued bond indentures.

Answer 1

Answer: The correct answer is b) are primarily designed to protect bondholders.

Explanation:

A Protective Covenant is part of an indenture that limits certain actions a company may take during the term of the loan to protect the lender's interests.

They are restrictions placed on the firm issuing bonds in a bid to protect bondholders. For example; they can be limits on dividend or limits on debt a firm can cause.

Answer 2

Answer:

B. are primarily designed to protect bondholders

Explanation:

Protective covenants are designed primarily to protect bondholders from future actions of bond issuer. They are also part of a loan agreement that limits certain actions a company may take during the course of the loan to protect the person who lend the money interests. They provide extra protection for the investors. Creditors use it to protect their interests by restricting certain activities of the issuer that could endanger the creditor's interest.