Debt Covenant
A debt covenant is a contractual clause in a loan agreement or bond indenture that imposes financial or operational restrictions on the borrower to protect lenders. It sets conditions or limits on actions the borrower may take during the life of the debt.
Example: A corporate loan may include a covenant requiring the borrower to maintain a minimum interest-coverage ratio of 3.0 and to obtain lender consent before issuing new debt above a set limit.
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