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Answer: The issuance of new debt must be subordinate to the claims of existing bondholders.
**Explanation:** - **Option A** is incorrect because it describes an affirmative covenant, which typically involves administrative promises such as compliance with laws and regulations. - **Option B** is correct because it represents a negative covenant, specifically a negative pledge, which restricts the issuer from issuing debt that would rank senior to or in priority with the existing bondholders' debt. - **Option C** is incorrect as it refers to an affirmative covenant, such as a pari passu clause, ensuring equal treatment of debt obligations with other senior debt instruments.
Author: LeetQuiz Editorial Team
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Which of the following is most likely a negative covenant?
A
The issuer must adhere to all applicable laws and regulations.
B
The issuance of new debt must be subordinate to the claims of existing bondholders.
C
New debt obligations are accorded equal treatment with the borrower's other senior debt instruments.
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