Also found in: Dictionary, Medical, Legal, Encyclopedia.
A bond covenant that forbids the issuer from taking certain actions. For example, a restrictive covenant may prevent an issuer from issuing more debt until the bond matures. More commonly, a restrictive covenant limits the dividends an issuer may pay to shareholders so as to reduce the risk to the bond. It contrasts with a positive covenant, which requires the issuer to take certain enumerated actions. It is also called a negative covenant.
A clause in a loan agreement that prohibits the borrower from an activity. For example, a negative covenant may restrict the payment of dividends or the issuance of new debt. Compare positive covenant.