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# Corporate Bonds

Typical negative covenants include the following types of promises:

- The company will not issue additional bonds that are more senior to the debt. Most lenders want guarantees that if they lend the company money by buying its bonds, the company won't follow suit by issuing new bonds or obtaining bank financing that's senior to their bonds.
- The company will not to change its corporate structure or state of incorporation. State laws vary widely with regard to the level of protection afforded lenders; therefore, bondholders often insist upon protection against the possibility of a company changing its state of incorporation.
- The company won't dispose of any significant assets. Lenders want companies to agree not to sell assets, because of the possibility that the sale proceeds could be misspent instead of acting as security for their loans.

Generally speaking, most investors lack the time and expertise required to read and understand all the provisions of the indenture, much less monitor whether the company adheres to its various covenants. They instead tend to rely upon the opinions of bond experts when determining which offerings have more attractive terms than others.

To monitor whether the company adheres to its covenants on an ongoing basis, each public offering is assigned a corporate trustee, which is often a commercial bank. Bondholders can have legal recourse against the trustee if it fails to notice a violation of a loan covenant that consequently causes a bondholder loss.

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