Final answer:
Negative covenants in bond indentures are restrictions that protect bondholders by limiting the actions of the bond issuer. Options (II), (III), and (IV) are examples of such covenants, as they restrict the company's ability to incur additional senior debt, lease major assets without approval, and mandate the maintenance of collateral.
Step-by-step explanation:
The negative covenants that might be found in a bond indenture are restrictions placed on the bond issuer to protect bondholders. Among the given options, (II) No debt senior to this issue can be issued, (III) The company cannot lease any major assets without approval by the lender, and (IV) The company must maintain the loan collateral in good working order could be considered negative covenants.
These covenants limit the actions of the company in order to preserve its ability to fulfill its obligations to bondholders. Option (I) The company shall maintain a current ratio of 1.10 or better is typically thought of as an affirmative covenant, as it states something the company must actively do, rather than a restriction.
Bondholders seek the inclusion of negative covenants in the bond agreement to provide assurances that the company will not undertake certain risks that could jeopardize its financial stability or its ability to make bond payments. The described protective measures are meant to ensure that even in the case of financial downturn or bankruptcy, the bondholders may recoup their investment to the greatest extent possible.