Negotiated covenants are the undertakings included in the indentures for debt securities where the investors in the securities are not satisfied to rely only on the issuer's promise to pay the principal of and interest on the securities when due. Similar to the covenants contained in bank loan agreements, the negotiated covenants protect the investors by limiting the issuer's right to take steps that may impair its ability to pay. Typically, the covenants limit the ability of the issuer to borrow money, grant liens on its assets, dispose of assets or make distributions to equityholders. The covenants address the variety of transactions that directly or indirectly have those economic effects.
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