If a firm issues debt and includes protective covenants in the indenture then the firm's debt will probably be issued at a lower interest rate than similar debt without the covenants.
Protective covenants:
- It is a legal clause in a contract or other legal document where one party agrees to take a certain action or refrain from taking a certain action or otherwise has obligations to safeguard the interest of another party.
- Such a contract can, more specifically, limit the number of tenants or inhabitants. Second, it prevents particular activities that are harmful to the general good. For instance, a covenant can forbid late-night gatherings and make it challenging for pet owners to keep their animals at home.
- Protective covenants are a clause in a contract that restricts the company's ability to engage in specific financial transactions.
- Restrictive covenants can be either affirmative or negative.
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