A company’s Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?
A . A positive loan covenant would require the company to undertake specific actions.
B . A loan covenant has no contractually binding obligations.
C . A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
D . A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
E . A financial covenant usually requires the company to adhere to specific financial conditions or targets.
Answer: A,C,E
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