Explanation:
Correct answer: A
A maintenance and replacement (M&R) fund is intended to maintain the value of the assets or security backing the debt, not necessarily improve it.
In addition, depending on the indenture terms, funds accumulated for maintenance/replacement may also be used in ways that can help retire debt.
Therefore, option A best matches the provision.
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Question 196.6 Which of the following is true about a maintenance and replacement fund (M&R) provision in a corporate utility bond?
A
M&R provision only maintains the value of the security backing the debt, but investors should be aware that M&R might be used to retire debt
B
M&R provision only maintains the value of the security backing the debt and cannot be used to retire debt
C
M&R provision improves the value of the security backing the debt, but investors should be aware that M&R might be used to retire debt
D
M&R provision improves the value of the security backing the debt and cannot be used to retire debt
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