Markets · 6 pages · 12 min

How a covenant is a promise inside a loan

A covenant is a contractual promise inside a loan that restricts the borrower or requires a financial test.

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From the opening

A covenant is a promise written into a loan or bond, requiring the borrower to do something, to refrain from something, or to meet a financial test. It is part of the contract that governs the debt, not a courtesy and not a planning target the borrower invented for itself. The opening covers promises sit inside the contract, some tests repeat each period, and some tests bite only on an action.

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Inside

Promises sit inside the contract
Some tests repeat each period
Some tests bite only on an action
A breach follows the document
Where the idea stops applying
A distinction worth keeping

Sources

Affirmative and negative covenants
Maintenance versus incurrence tests

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How a covenant is a promise inside a loan

From the opening

Inside

Sources

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