Exercise 1
Discuss and explain what the most common res

Question

Exercise 1
Discuss and explain what the most common restrictive covenants do.

TutorBin · Accepted Answer

The restrictive covenant is the condition that restricts, prohibits prevents actions, Limit the action of someone named in the agreement. There are two types of Covenants – Negative and positive. Under negative covenants, a person cannot take predefined restrictions. Under positive covenants, a person is required to take certain actions.

Bond Covenants is a legally written agreement between the bond issuer and bondholders. The main objective of this type of agreement is to protect the interest of both parties under negative bond covenants, a bond issuer is restricted from issuing additional debt, restrictions from him to making new additional capital investments. When the issuer/holder violates any condition of bond covenants it is considered a technical default and a common penalty as agreed in the agreement is imposed. On bond issuers, it is mostly Downgrading of bond rating.

Under a positive covenant bond issuer is required to take legal action against the bondholder. In Bonds covenants, the bond issuer protects himself from borrowers defaulting on financial obligations. It is just protection of financial obligation that bondholders get.

Exercise 1

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