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Why do the issuers of bonds not seek to minimize the strength and number of covenants in a bond agreement?

Lopezj273

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Why do the issuers of bonds not seek to minimize the strength and number of covenants in a bond agreement?

Why do the issuers of bonds not seek to minimize the strength and number of covenants in a bond agreement?

▸

Covenants lower the interest rate investors will require to buy the bond.

▸ Covenants can increase the flexibility of the company issuing the bond.

▸

Covenants force the company to renegotiate the terms of the bond if they are broken.

▸ Covenants favor the equity holders that managers work for.

Textbook

Fundamentals of Corporate Finance

Edition: 2^nd

Authors: Berk, DeMarzo, Harford

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anthead

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More solutions for this book are available here

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