Which of the following provisions would least likely be included in the bond covenants? The borrower must:
A) maintain a debt-to-equity ratio of no less than 2:1. B) maintain insurance on the collateral that secures the bond. C) not increase dividends to common shareholders while the bonds are outstanding.
A) is correct. A lender wants to prohibit the borrower from becoming more leveraged. This can be done by requiring a leverage ratio that is no more than a specified amount. Reducing leverage would be beneficial to the lender by lowering risk.
How come?? I would totally say that A) is the most likely to be included in the bond covenants.