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1. No one will buy them.
2. They will have to offer a higher interest rate to do so.
3. They will have to pay the same interest rate as other firms.
4. It will cause them to enter bankruptcy.
Option 2 is the right answer.
No one will buy them or if the security coverage is good, then they may find buyers, but they will still have to pay higher interest to do so
They will have to pay the same interest rate as other firms
Difficult but doable job.
Finance involves lot of common sense. So if the borrower is going to be a bankrupt firm which investor would put money in?
Borrower need to do many things such as a) offer high rate of return, b) explain and convince about use of funds, the business and certainty of getting money back, c) offer additional security to give comfort.
To safeguard its interest, Borrower need to keep riders of revision in interest rate and/or removal of additional security when situation has improved.
1. NO one will buy them.
Any Investor will look out for the Going concern principle in his decision making. Normally, an entity is considered a going concern if it is able to carry out the business for at least next one year. But for different investors, the periodicity can be different. For Bond holders, the Debt service coverage ratio is the measure for their investment decisions. Since nobody can expect even Capital recovery from a firm in the course of bankruptcy, Nobody will like to busy those.
