Which of the following could be a consequence of "Incurrence Covenants"?

Incurrence covenants are specific agreements within a loan or bond indenture that place restrictions on a borrower's future actions until certain financial metrics or conditions are met. They are typically designed to protect lenders by allowing them to monitor the borrower's financial health and restrict activities that could increase risk.

The correct answer highlights that incurrence covenants can indeed lead to the prohibition of future borrowing or asset sales. These covenants typically require the borrower to maintain certain financial ratios or metrics, and failing to adhere to these ratios can limit the company’s ability to take on additional leverage or sell assets. This protective measure ensures that the borrower does not take on more risk or diminish the assets that secure existing debts, which might jeopardize the interests of the lenders.

The other choices involve consequences that are usually not applicable to incurrence covenants. For instance, canceling existing loans would generally not be a direct consequence of incurrence covenants; instead, these covenants primarily manage future activities. Immediate repayment of all debts typically relates to default scenarios or acceleration clauses, rather than the provisions of incurrence covenants. An automatic loan term extension is not a typical result of incurrence covenants; such extensions may occur under different circumstances, often associated with renegotiations or