Negative Covenant

外汇网2021-06-19 14:09:09 60

A bond covenant pventing certain activities, unless agreed to by the bondholders. Negative covenants are written directly into the agreement creating the bond issue, are legally binding on the issuer, and exist to protect the best interests of the bondholders. Also referred to as "restrictive covenant".

|||Think of a negative covenant as a promise not to do something. Usually, negative covenants limit the amount of pidends a firm can pay to shareholders and restrict the ability of the firm to issue additional debt. Generally, the more negative covenants exist in a bond issue, the lower the interest rate on the debt will be since the restrictive covenants make the bonds safer in the eyes of investors.

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