Larry Purcell, an entry-level fixed income analyst at Knowhon & Smeades LLC, was discussing debt covenants with his supervisor, Andy Holzman. During the meeting Purcell made the following statements regarding bond covenants: Statement 1: If a firm violates any of its debt covenants, the company will immediately go into bankruptcy and the creditors of the firm will take over the liquidation of its assets. Statement 2: Debt covenants are important in evaluating a firm’ s credit risk and to better under-stand how the restrictions of the covenants can affect the firm’ s growth prospects and choice of accounting policies. Are statements 1 and 2 .s made by Purcell regarding bond covenants correctStatement 1 Statement 2 ①A. Correct Correct ②B. Incorrect Incorrect ③C. Incorrect Correct
A．
| A. ① |
B．
| B. ② |
C．
| C. ③ |
参考答案：C
解析：Lenders and other creditors use debt covenants in their lending agreements to restrict the activities of the debtor that could adversely impact the creditors’ position. If any bond covenant is violated, the firm is in technical default on its debt. The creditors can demand payment of the debt, however, the terms are generally renegotiated. As such, the company does not automatically enter into bankruptcy and have its assets liquidated by the creditors.
