In relation to the financial market, a written statement made by a company to the lending bank (an agreement in a loan document to do or not do something specified). It specifies in detail things such as – prohibition of indebtedness to other banks, provision of collateral, information obligations or prohibition of sale (legal covenants). In addition, the company promises to maintain certain balance sheet ratios, to keep certain balance sheet items at an agreed minimum or maximum level (cover ratios), to report key earnings figures to the bank on an ongoing basis, etc. (maintenance covenants, financial covenants). (maintenance covenants, financial covenants), and – to maintain payments due for insurance and taxes (affirmative covenants). – In the event of non-compliance, the company usually has to pay the bank contractually agreed penalties – usually referred to as contractual penalties. In some contracts, non-compliance with a covenant also gives the bank the right to call in the loan immediately (forfeit clause). – See investment courage, bank customer profile, Basel II, corporate finance, loan, revoked, third-party default clause, downgrade trigger clause, emerging markets, event of default, financial covenants, overall maturity, credit scoring procedure, loan securitization, customers, bad, leveraged loans, minimum risk management requirements, risk department, risk weighting, risk control, risk measurement procedures, risk reporting, risk monitoring, articulated, shock management, monetary, scenarios, exceptional, overconfidence, forfeiture clause. – Cf. ECB Monthly Bulletin, August 2007, p. 102 (covenants in leveraged buyouts).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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