116:
58:
Covenants are undertakings given by a borrower as part of a term loan agreement. Their purpose is to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity. From the borrower's point of view covenants often appear to be an obstacle at the time of
77:
Covenants can potentially have negative consequences as well. As the creditor is imposing restrictions on how the debtor should conduct business, the debtor's economic freedom is restricted. This may lead to decreased efficiency. When a covenant is broken and additional equity should be contributed,
62:
Proponents of the use of covenants, emphasizing the early warning function of covenants, take the case further by arguing that well-designed covenants provide not only timely performance indicators but also open up lines of communication between borrower and lender.
31:
issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met.
81:
Covenants can be financial, information, ownership, affirmative, negative or positive covenants. Often, the breach of any covenant gives the lender the right to call the loan or collect interest at a higher rate.
78:
the debtor might not be able to provide it or at least not adequately. This results in making the whole loan due; a resulting fire sale may lead to high write-offs on the debtor's books.
47:": once the buyer defaults, all future payments due under the loan are "accelerated" and deemed to be due and payable immediately.
157:
201:
196:
50:
Covenants may also be waived, either temporarily or permanently, usually at the sole discretion of the lender.
150:
71:
191:
186:
143:
43:. The legal provision in the loan agreement providing for the loan to be "called" is the "
8:
67:
44:
131:
98:
36:
176:
181:
127:
28:
170:
39:
on the loan being declared, penalties being applied, or the loan being
123:
59:
negotiating a loan and burdensome restriction during its term.
115:
92:
24:
99:
Cornell Law School Legal
Definition: Acceleration Clause
66:
Typical covenants for real estate related loans are the
74:(DSCR) and Interest Service Coverage Ratio (ISCR).
35:Typically, violation of a covenant may result in a
168:
16:Condition in a commercial loan or bond agreement
151:
158:
144:
169:
110:
13:
14:
213:
114:
23:is a condition in a commercial
1:
85:
130:. You can help Knowledge by
7:
72:debt service coverage ratio
53:
10:
218:
202:Economic terminology stubs
197:Working capital management
109:
68:Loan to Value Ratio
45:acceleration clause
126:term article is a
192:Corporate finance
139:
138:
209:
160:
153:
146:
118:
111:
101:
96:
217:
216:
212:
211:
210:
208:
207:
206:
187:Bonds (finance)
167:
166:
165:
164:
107:
105:
104:
97:
93:
88:
56:
17:
12:
11:
5:
215:
205:
204:
199:
194:
189:
184:
179:
163:
162:
155:
148:
140:
137:
136:
119:
103:
102:
90:
89:
87:
84:
55:
52:
15:
9:
6:
4:
3:
2:
214:
203:
200:
198:
195:
193:
190:
188:
185:
183:
180:
178:
175:
174:
172:
161:
156:
154:
149:
147:
142:
141:
135:
133:
129:
125:
120:
117:
113:
112:
108:
100:
95:
91:
83:
79:
75:
73:
69:
64:
60:
51:
48:
46:
42:
38:
33:
30:
26:
22:
21:loan covenant
132:expanding it
121:
106:
94:
80:
76:
65:
61:
57:
49:
40:
34:
20:
18:
70:(LTV), the
171:Categories
86:References
124:economic
54:Function
37:default
177:Credit
41:called
182:Loans
122:This
128:stub
29:bond
25:loan
27:or
173::
19:A
159:e
152:t
145:v
134:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.