Question

What action can secured bondholders take in the event of nonpayment of interest or principal?

a) Foreclose on the collateral
b) Sue the company for damages
c) Request a re-negotiation of terms
d) Seek a government bailout

Answer 1

If a corporate bond issuer fails to make payme nts, bondholders can foreclose on collateral, sue for damages, or request re-negotiation of terms. So, the correct answer is option d.

Step-by-step explanation:

If a corporate bond issuer fails to make the payments that it owes to its bondholders, the bondholders have several actions they can take:

1. Foreclose on the collateral: Secured bondholders can seize and sell the collateral that was used to secure the bond, such as property or assets.
2. Sue the company for damages: Bondholders can take legal action against the company to seek compensation for the unpaid interest or principal.
3. Request a re-negotiation of terms: In some cases, bondholders may be able to negotiate new terms with the company to address the nonpayment issue.

Seeking a government bailout is not typically an option for bondholders. So, the correct answer is option d.