© 2000 John Petroff
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© 2000 John Petroff |
1)- Provisions protecting bondholders
A bond that offers no protection to the bondholder (other than a definite promise to coupon and principal at specified dates, and the right to put the corporation in default), is called a debenture. Few are the corporations in the United States that hold such investors' esteem, to be able to issue debentures at going market yields. At the other extreme, debentures are also issued by least desirable borrowers having nothing left to offer as security (see below) and with outrageous yields.
In between these extremes, corporations will usually put together
a number of clauses reassuring potential purchasers. Here
is a list of common such provisions
a)- appointment of trustee in case of default
b)- open-end mortgage giving first mortgage on specified property
c)- closed-end mortgage that does not allow addition mortgage
on the same property
d)- blanket lien on a portion or type of assets
e)- put provision giving the bondholder the right to sell the
bond back to the company
f)- limitations on sale of any and all assets
g)- limitations on taking on additional debt
h)- limitations on dividend distributions and other payments
See review questions Q-12D1.1 and Q-12D1.2.
See research assignment R-12D1.1.
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