Covenant

How it is used

Used in corporate lending and loan documents. Financial covenants set ratios such as maximum net debt/EBITDA; other covenants limit new borrowing, asset sales or dividends. A borrower that breaches a covenant may have to ask for a waiver, or the lender can demand early repayment.

Example sentences

1. The loan has a covenant that net debt must stay below three times EBITDA.

2. The company breached its covenants and asked the banks for a waiver.

Common collocations

• financial covenant
• breach a covenant
• covenant waiver
• covenant compliance

Related terms

• credit facilityAn arrangement in which a bank agrees to lend a company up to a set amount, which the company can draw on as needed under agreed terms.
• syndicated loanA large loan provided by a group of banks together under one agreement, so that no single bank takes all the risk.
• EBITDAShort for earnings before interest, taxes, depreciation and amortization: a measure of a company's operating profit before financing costs and non-cash expenses.
• leverageUsing borrowed money to finance assets or investments, or the level of a company's debt compared with its equity or earnings.
• defaultFailure to make loan or bond payments as agreed. A borrower is usually treated as in default after missing payments for a set period, often 90 days.

This word in other fields

The same English word can have a different meaning in another field:

• covenant · Religious Studies & Theology

More terms: Loans & Credit

• loan
• mortgage
• collateral
• credit score
• principal
• installment
• borrower
• lender
• take out a loan
• pay off
• outstanding
• guarantor