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A year ago
Financial distress is costly to bondholders. And bondholders often demand various provisions to ensure that managers act in manner that does not transfer wealth from them to the shareholders. Restrictive covenants on debt are one way to prevent this “bondholder wealth expropriation.” Search for bond covenants on the Internet and then answer a couple of questions about them.

Questions to pose:
1.  List some of the more common covenants.

2. What recourse is available to a bondholder if a covenant is violated?
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Reading and Writing About Contemporary Issues
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A year ago
1.  List some of the more common covenants.
Answer:  Common bond covenants include;
-restrictions on issuing additional debt
-requirements for third party audits
-restrictions on shareholder distributions
-capital budgeting restrictions
-requirements to maintain certain liquidity ratios or leverage ratios.

2. What recourse is available to a bondholder if a covenant is violated?
Answer: Violation of a bond covenant can trigger immediate repayment of the bonds or result in a bond downgrade.
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