What is an 'Affirmative Covenant'

An affirmative covenant is 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.

RELATED TERMS
  1. Negative Covenant

    A bond covenant preventing certain activities, unless agreed ...
  2. Covenant

    A promise in an indenture, or any other formal debt agreement, ...
  3. Bond Covenant

    A legally binding term of an agreement between a bond issuer ...
  4. Running With The Land

    The rights and covenants in a real estate deed that remain with ...
  5. Restrictive Covenant

    Any type of agreement that requires the buyer to either take ...
  6. Debt Limitation

    A bond covenant that limits or restricts any additional debt ...
Related Articles
  1. Investing

    Understanding Covenants

    A covenant is a term placed in a loan that requires the borrower to either maintain or refrain from certain business activities.
  2. Investing

    Corporate Bonds and the Importance of Covenants

    Any type of investor, private or institutional, should be acquainted with the significance of covenants in corporate bond agreements.
  3. Small Business

    What Affirmative Action Means for Businesses

    A look at what Affirmative Action means for your business.
  4. Financial Advisor

    Affirm Acquires Budgeting App Sweep

    The online lending platform, Affirm, will follow other FinTech companies seeking to attract daily users via a one-stop shop for financial tools.
  5. Investing

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  6. Insights

    What Part of the Money Supply is M2?

    M2 is the part of the money supply economists use to analyze and predict inflation.
  7. Investing

    A Guide to High Yield Corporate Bonds

    The universe of corporate high yield bonds encompasses multiple different types and structures.
  8. Investing

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  9. Investing

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  10. Insurance

    Encumbrances And Nonpossessory Interests In Real Property

    Learn about nonpossessory interests and the various forms of encumbrances.
RELATED FAQS
  1. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank ... Read Answer >>
  2. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  3. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center