negative covenant

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Related to negative covenant: Negative pledge, Affirmative Covenants

Negative covenant

A bond covenant that limits or prohibits certain actions unless the bondholders agree.

Restrictive Covenant

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.

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.
References in periodicals archive ?
The line of credit is secured by a first priority security interest in all of Somaxon's assets, excluding intellectual property, and it contains affirmative and negative covenants, including financial covenants requiring Somaxon to maintain certain levels of cash and investments and a minimum liquidity ratio.
Additionally, the company said that the new facility includes a USD60m senior term loan and USD10m senior revolving credit facility which has a short-term variable interest rate plus a leverage-based margin, customary representations and warranties and affirmative and negative covenants.