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.