medium · Corporate Credit Analysis covenants
If a borrower is in 'Distressed Debt' territory (trading at 60 cents), which clause gives the 'Ad Hoc Committee' of bondholders the most power to force a restructuring?
- The 'Negative Pledge' clause, because it merely blocks the borrower from granting new liens.
- Cross-default, because it allows them to declare a default as soon as the borrower misses a bank payment.
- Cross-acceleration, because it lets bondholders demand immediate cash the instant another lender accelerates.
- The 'Asset Sale' clause, because it requires the sale's proceeds to repay bondholders in full at par.
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