#analyst #fixed #income
Bond Covenants
Affirmative covenants set forth certain actions that borrowers must take, such as:
- Paying interest and principal on a timely basis
- Paying taxes and other claims when due
- Keeping assets in good conditions and in working order
- Submitting periodic reports to a trustee so that the trustee can evaluate the issuer's compliance with the indenture
Negative covenants set forth certain limitations and restrictions on the borrower's activities, such as:
- Limitations on the borrower's ability to incur additional debt unless certain tests are met
- Limitations on dividend payments and stock repurchases
- Limitations on the sale of assets
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Subject 2. Bond Indentureantees from third parties. Examples include surety bonds, bank guarantees, and letters of credit. If the third-party defaults, the external credit enhancement will fail. A cash collateral account can mitigate this concern.
<span>Bond Covenants
Affirmative covenants set forth certain actions that borrowers must take, such as:
Paying interest and principal on a timely basis Paying taxes and other claims when due Keeping assets in good conditions and in working order Submitting periodic reports to a trustee so that the trustee can evaluate the issuer's compliance with the indenture
Negative covenants set forth certain limitations and restrictions on the borrower's activities, such as:
Limitations on the borrower's ability to incur additional debt unless certain tests are met Limitations on dividend payments and stock repurchases Limitations on the sale of assets
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