Bond Covenant

AAA

DEFINITION of 'Bond Covenant'

A legally binding term of an agreement between a bond issuer and a bond holder. Bond covenants are designed to protect the interests of both parties. Negative or restrictive covenants forbid the issuer from undertaking certain activities; positive or affirmative covenants require the issuer to meet specific requirements.

INVESTOPEDIA EXPLAINS 'Bond Covenant'

Possible bond covenants might include restrictions on the issuer's ability to take on additional debt, requirements that the issuer provide audited financial statements to bond holders and limitations on the issuer's ability to make new capital investments. When an issuer violates a bond covenant, it is considered to be in technical default. A common penalty for violating a bond covenant is the downgrading of a bond's rating, which could make it less attractive to investors and increase the issuer's borrowing costs.

RELATED TERMS
  1. Bond Purchase Agreement

    A legally binding document between a bond issuer and an underwriter ...
  2. Bond Violation

    A breach of the terms of a surety agreement. A bond violation ...
  3. Dim Sum Bond

    A bond denominated in Chinese yuan and issued in Hong Kong. Dim ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with ...
  5. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  6. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
Related Articles
  1. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  2. Basics Of Federal Bond Issues
    Bonds & Fixed Income

    Basics Of Federal Bond Issues

  3. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  4. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center