Ace the Canadian Securities Course 2025 - Rock the CSC Practice Exam!

Question: 1 / 400

What is the purpose of a Negative Pledge Provision in a company's debenture issue?

a bond with an option allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm.

a protective provision providing that no subsequent mortgage bond issue may be secured by all or part of the company's assets.

A Negative Pledge Provision is a protective measure that ensures the assets of a company cannot be used as collateral for any future bond issues. This option will limit the company's ability to secure additional debt against its assets, safeguarding existing bondholders' interests.

A is incorrect because it describes a convertible bond, not a Negative Pledge Provision. B is the correct answer as it properly describes the purpose of a Negative Pledge Provision.

C is incorrect because it describes a sinking fund provision, not a Negative Pledge Provision. D is incorrect because it describes a banker's acceptance, not a Negative Pledge Provision. While it is true that these provisions are commonly used in debenture issues, they do not serve the same function as a Negative Pledge Provision.

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sums of money set aside out of earnings each year to provide for the repayment of all or part of a debt issue at maturity.

a short-term commercial draft sold at a discount.

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