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Limitation on Liens

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Limitation on liens
A bond covenant that restricts in some way a firm's ability to grant liens on its assets.

Limitation on Liens
An aspect of some bonds in which the issuer is only allowed to grant liens on its assets in certain circumstances. A bond with a limitation on liens generally carries lower risk because, in the event of default, the issuer's assets have fewer liens from secured creditors. This means that the bondholders have a higher priority on the proceeds of liquidation.


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These include change of control provisions in the company's private placements and preferred securities as well as limitation on liens in the senior unsecured bonds and private placements.
Under ArvinMeritor's unsecured indentures, the company has a limitation on liens of up to 15% of the value of consolidated net tangible assets, which is defined to exclude certain 'principal property' assets.
 
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