2. Which of the following is not a bond protection against issuer default?
C. Sinking funds
D. Making newer debt junior
The correct answer is A because the debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral.
Covered bonds are debt obligations that have recourse either to the issuing entity or to an affiliated group to which the issuing entity belongs, or both. Upon an issuer default, covered bond holders also have recourse to a pool of collateral (known as the “cover pool”), separate from the issuer’s other assets. The cover pool usually consists of high quality assets, including residential mortgages, public debt, or ship loans. Cash, or cash equivalents, also may serve as cover pool collateral.