Limitation on liens

Limitation on liens

A bond covenant that restricts in some way a firm's ability to grant liens on its assets.

Limitation on Liens

An aspect of some bonds in which the issuer is only allowed to grant liens on its assets in certain circumstances. A bond with a limitation on liens generally carries lower risk because, in the event of default, the issuer's assets have fewer liens from secured creditors. This means that the bondholders have a higher priority on the proceeds of liquidation.
References in periodicals archive ?
The indenture does include a limitation on liens covenant, which enables existing unsecured debt to be equally and ratably secure with any new secured debt funding incurred in an LBO in the event that total secured debt, excluding certain permitted liens, exceeds 5% of net tangible assets, or $80 million, as of Sept.
Under ArvinMeritor's unsecured indentures, the company has a limitation on liens of up to 15% of the value of consolidated net tangible assets, which is defined to exclude certain 'principal property' assets.