a. Who benefits from the fine print in bond contracts when the firm gets into financial trouble? Give a one-sentence answer.
b. Who benefits from the fine print when the bonds are issued? Suppose the firm is offered the choice of issuing (i) a bond with standard restrictions on dividend payout, additional borrowing, etc., and (ii) a bond with minimal restrictions but a much higher interest rate? Suppose the interest rates on both (i) and (ii) are fair from the viewpoint of lenders. Which bond would you expect the firm to issue? Why?
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