Debt-to-equity ratio least likely be included in the bond covenants???

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.

Why would bondholders want a high debt-to-equity ratio? Why would they want to guarantee that the company is _ more _ risky?

oooh, it’s of NO less than 2:1 :smiley: Thanks

My pleasure.