Contingent covenant: Difference between revisions
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imported>Doug Williamson (Create the page. Sources: Pingyang Gao, University of Chicago, August 2011 http://faculty.chicagobooth.edu/workshops/accounting/past/pdf/GaoConservatismV3.pdf; Klaus M Schmidt, University of Munich 2008: http://www.et.econ.uni-muenchen.de/personen/pr) |
imported>Doug Williamson (Amend to 'according to'.) |
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''Loan documentation.'' | ''Loan documentation.'' | ||
A covenant which comes into effect only if the borrower is doing badly, | A contingent covenant is a covenant which comes into effect only if the borrower is doing badly, according to some pre-agreed measure or other test. | ||
Its purpose is to allow the borrower to retain operational flexibility while its credit remains strong, but to allow the lender to impose restrictions on the borrower's flexibility when restrictions or renegotiations become appropriate. | Its purpose is to allow the borrower to retain operational flexibility while its credit remains strong, but to allow the lender to impose restrictions on the borrower's flexibility when restrictions or renegotiations become appropriate. | ||
Revision as of 18:30, 26 July 2015
Loan documentation.
A contingent covenant is a covenant which comes into effect only if the borrower is doing badly, according to some pre-agreed measure or other test.
Its purpose is to allow the borrower to retain operational flexibility while its credit remains strong, but to allow the lender to impose restrictions on the borrower's flexibility when restrictions or renegotiations become appropriate.
