Affirmative Covenant

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DEFINITION of 'Affirmative Covenant'

A type of promise or contract which requires a party to do something. For example, a bond covenant that provides that the issuer will maintain adequate levels of insurance or deliver audited financial statements is an affirmative covenant.

BREAKING DOWN 'Affirmative Covenant'

Affirmative (or positive) covenants can be compared to restrictive (or negative) covenants, which require a party not to do something, such as sell certain assets. In bond agreements, both affirmative and restrictive covenants are used to protect the interests of both issuer and bondholder.

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