See Also:
Company Valuation
Coupon Rate Bond
Fixed Income Securities
How to Manage Your Banking Relationship
Long Term Debt
Non-Investment Grade Bonds
Par Value of a Bond
Covenant Definition
The covenant definition is a restrictive clause in a bond contract. The purpose of the clause is to protect the lender (the party that invests in the bond) by imposing restrictions on the borrower (the party that issues the bond). Furthermore, the covenant amounts to the lender agreeing to lend money to the borrower as long as certain financial performance criteria are met and maintained throughout the duration of the loan contract.
Convenant Criteria
Covenants may cover criteria including the following:
- Levels of working capital
- Debt-equity ratios
- Dividend payments
- Other factors that can affect the borrower’s ability to repay loans
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