The Purpose of Debt Covenants That Require the Firm to Rank

Multiple Choice

The purpose of debt covenants that require the firm to rank any subsequent borrowing below the original loan is to:

A) limit the amount of fixed-interest payments.
B) make sure that any cash restraints do not affect current obligations.
C) protect the lender in their claim over pledged assets in the event of failure.
D) protect the shareholders' claims over assets.