mouse123

Which of the following is an example of a positive covenant? The company:

A) must not use the same collateral to back more than one debt obligation.

B) may not sell fixed assets that have been pledged as collateral for the bonds.

C) must maintain a times interest earned ratio of at least two times.

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Positive covenants specify what the company must do, negative covenants specify what they must not do. Both of the alternatives are examples of negative covenants.

mouse123

Which of the following is NOT a negative bond covenant?

A) Credit rating must be investment grade.

B) Current ratio of at least 2.25.

C) Restriction on asset sales.

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Current ratio covenants are positive (borrower promises to perform) versus the others listed (prohibitions on the borrower).