Which of the following statements about coercive bond exchange offers is true?
A)A bond with a coercive exchange offer provides upside potential with limited downside risk to the bondholders.
B)A bond with a coercive exchange offer would have to offer a higher rate of return, all else equal.
C)The owner of a bond that has a coercive exchange offer will be better off if he or she chooses not to participate in the offer.
D)If all the bondholders choose to participate in a coercive exchange offer, they will collectively be better off.

Question

Quizplus · Accepted Answer

Coercive bond exchange offers typically involve the issuer seeking to replace an existing bond with a new issue under less favorable terms for the bondholders. To incentivize bondholders to accept the exchange, the new bond might offer a higher interest rate or other benefits to offset the less favorable terms. However, the term "coercive" implies that bondholders are pressured into the exchange, possibly because the alternative might involve even less favorable outcomes, such as a higher risk of default.

Which of the Following Statements About Coercive Bond Exchange Offers