Question 5.2: Explain what is meant by the following terms that refer to b...
Explain what is meant by the following terms that refer to bonds:
(a) restrictive covenant;
(b) refinancing;
(c) redemption window.
(a) A restrictive covenant places limitations on the actions of managers in order to safeguard the investment made by providers of debt finance.
(b) Refinancing involves the replacement of existing finance with new finance. This may occur at redemption, if existing debt is replaced by a new issue of debt, or as part of a restructuring of a company’s capital structure in line with financial plans.
(c) A redemption window is a period of time during which bonds can be redeemed.
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