单选题

An analyst reviews a corporate bond indenture that contains these two covenants:
1) The borrower will pay interest semi-annually and principal at maturity.
2) The borrower will not incur additional debt if its debt/capital ratio is more than 50%.
What types of covenants are these?

A、 Both are affirmative covenants.
B、 Covenant 1 is negative and Covenant 2 is affirmative.
C、 Covenant 1 is affirmative and Covenant 2 is negative.

【正确答案】 C

【答案解析】

C is correct because to pay interest and principal is one of the most common affirmative covenants. Negative covenants set forth certain limitations and restrictions on the borrower’s activities. The more common restrictive covenants are those that impose limitations on the borrower’s ability to incur additional debt unless certain tests are satisfied, such as a debt/capital ratio.