Contingent covenant

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Loan documentation.

A contingent covenant is a covenant in borrowings documentation which is contingent on a particular event or measure.

A common example is a contingent covenant linked with the borrower's credit rating.

The existence of such covenants is a very significant source of risk for borrowers which are close to the boundary where the covenant might be triggered, for example following any further deterioration in the borrower's credit rating.

See also