COVENANTS

covenants: translation

Restrictions on the activities of a debtor written into bank loan agreements or bond indenture agreements.

Also called indenture covenants or protective covenants.

Contractual terms of the loan or indenture agreement that prohibit the debtor from taking actions that might hurt the interests of the lenders or bondholders. Designed to protect the interests of creditors - often (but not limited to) unsecured creditors. Four common examples of covenants are prohibitions against: issuing new debt, paying dividends if certain minimum financial standards are not maintained, merging with another company, and selling corporate assets. American Banker Glossary

Covenants: translation

Provisions in a bond indenture or preferred stock agreement that require the bond or preferred stock issuer to take certain specified actions (affirmative covenants) or to refrain from taking certain specified actions (negative covenants). The New York Times Financial Glossary