Answer: negative pledge.

## Explanation **Correct Answer: A. negative pledge.** A **negative pledge** is a bond covenant that prevents the issuer from creating any new debt that would be senior to (or have priority over) the existing bondholders' debt. This covenant protects existing bondholders by ensuring that their claims on the issuer's assets are not diluted by the issuance of more senior debt. **Why the other options are incorrect:** - **B. restriction on debt:** While this sounds similar, it's too broad and general. A "restriction on debt" could refer to various types of debt limitations, but the specific covenant preventing issuance of senior debt is precisely defined as a negative pledge. - **C. cross-default clause:** This is a different type of covenant entirely. A cross-default clause states that if the issuer defaults on any other debt obligation, it will also be considered in default on this bond. This is about default triggers, not about preventing the issuance of senior debt. **Key Concept:** Negative pledge covenants are common in bond indentures to protect bondholders' relative priority in the capital structure. They ensure that existing bondholders maintain their position and are not subordinated to new lenders without their consent.

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