Positive covenant (of a bond)
A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.
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A bond covenant that requires the issuer to take certain actions. For example, a positive covenant may require an issuer to maintain enough liquid assets to cover the principal of the bond. More commonly, a positive covenant requires the issuer to have a certain amount of insurance or submit to periodic audits. It contrasts with a negative covenant, which prevents the issuer from taking the enumerated actions. It is also called an affirmative covenant.
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A clause in a loan agreement that requires a specified action by the borrower. For example, a positive covenant may mandate that the borrower maintain a specific level of working capital or issue periodic reports to creditors. Compare negative covenant.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.