Financial covenant

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Revision as of 14:03, 21 November 2012 by imported>Doug Williamson (Added "See also" reference back to "Headroom".)
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Loan documentation. A clause in a loan agreement that commits the borrower to operate within predefined financial constraints.

For example, an interest cover covenant might state that interest cover will be no less than 3 times; the borrower promises that the ratio will always exceed the set figure.

Breach of a financial covenant would normally constitute an event of default.

See also