Covenants

The term ‘covenant’ refers to the provisions in a debt agreement that protect lenders from borrowers defaulting on their obligations due to financial actions—when breached, covenants trigger compensatory and other legal actions. There are two forms of covenants: affirmative covenants and negative covenants—negative covenants force borrowers to refrain from certain actions that could result in their inability to repay existing debt; affirmative covenants force borrowers to perform specific actions or maintain certain balances.

Other Terms