| 单词 | COVENANT |
| 释义 | A clause in a LOAN agreement or BOND INDENTURE that requires the borrower to adhere to certain conditions. The conditions may be affirmative, such as paying PRINCIPAL and COUPONS on a timely basis or preserving an adequate amount of INSURANCE coverage, or negative (restrictive), such as not disposing of certain ASSETS, not breaching financial ratios, or not taking actions that might impair the value of any assets pledged as COLLATERAL. Violation of a covenant can result in the loan or bond being terminated and becoming immediately due and payable. Covenants are commonly based on RESTRICTED RETAINED EARNINGS (limiting the payment of DIVIDENDS if the borrower sustains operating losses), net tangible assets (limiting investment, dividends, and new debt if net tangible assets fall below a particular level), WORKING CAPITAL (limiting CORPORATE FINANCE transactions, dividends, and new debt if working capital declines), and LEVERAGE (limiting new debt if total debt to equity becomes too large). |
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