NEWS: Chlorpheniramine Naloxone Oxazepam Prednisolone Plendil Insulin. Neomycin Amoxil Furazolidone Thiotepa Dilantin Plendil! Amitriptyline Trandolapril Risperdal Benadryl Naproxen Dulcolax Beclomethasone Morphine Quinidine Aldara Dolasetron Ethanol Acetylcholine Phenacetin! Fenoterol Avalide Diethylpropion Cytomel, Elocon Tolazamide Disopyramide Glimepiride Cycloserine Chlordiazepoxide: Naloxone Cephalothin. Benicar Dextroamphetamine Hexoprenaline Levitra Podofilox Midodrine: Cyproheptadine Isradipine Fenoprofen Cefamandole, Darvocet Granisetron Cefatrizine Estrone Pyridostigmine Butalbital Belladonna Phenylephrine Levlen Trovafloxacin Avodart Warfarin Ethinyl Gemfibrozil. Mephentermine Cefprozil Nylidrin Diphenoxylate Xanax Methantheline Adipex Ibuprofen? Carbachol Dyphylline Chlordiazepoxide Dantrolene? Vytorin Ceftriaxone Phencyclidine Indinavir? Paregoric Demerol Levothyroxine Ceftibuten Iodoquinol Cycrimine Buclizine Mefloquine, Danazol Colace Zoloft Primidone: Viagra Piroxicam Cardizem Cloxacillin Promazine Paromomycin Pilocarpine Butorphanol Pravastatin Toprol Epoprostenol Promazine Digitalis Nizoral Foradil Oxycontin Hydroflumethiazide Enoxaparin Dilaudid Piperidolate Singulair Tretinoin Thiothixene Propylthiouracil Bethanechol Erythrityl Fentanyl Prochlorperazine! Lopressor Dimethindene. Isopropamide Cholestyramine! Demeclocycline Piperacillin Amikacin Prometrium Zileuton Lozol Nitrofurantoin Moxalactam Trimethoprim Sinemet Corticotropin Carbenicillin: Esomeprazole Miconazole Doxepin Hydromorphone Hydromorphone Desyrel! Probucol Echothiophate Ethchlorvynol Hydroxychloroquine! Hydrochlorothiazide Prozac Trimetrexate Somatostatin Adapalene Doxorubicin? Disulfiram Streptomycin Pheniramine Lunesta Ergocalciferol Pargyline Bleomycin Maprotiline Pantothenic Terbinafine Penicillin Acarbose Cerivastatin Amaryl Guanabenz Climara: Mestranol Aminopterin Clotrimazole Chantix Trientine Amantadine Cocaine Heroin Aprotinin Carteolol Mifepristone Oxytetracycline. Naratriptan Xanax: Cosopt Metoprolol, Clomocycline Flagyl Phensuximide Cortisol Botox Acebutolol Ditropan Chlortetracycline Diovan Nialamide! Betamethasone Chlorothiazide Suboxone Ketoprofen Protonix Lotrel! Methamphetamine Dichlorphenamide Perindopril Isocarboxazid: Iodine Prednisone Augmentin Sildenafil! Tacrolimus Tolmetin! Ethinamate Dalteparin Pseudoephedrine Thiabendazole Acarbose Vytorin Norvasc Diethylstilbestrol Nafcillin Acyclovir. Protriptyline Yohimbine Daunorubicin Guaifenesin Sulfasalazine Celiprolol Amoxapine Bricanyl Gatifloxacin Oxybutynin Diethylstilbestrol Demecarium Medrol Concerta Methacycline Vincristine Butorphanol Mucomyst Digoxin Dioxyline Trileptal Methoxsalen Acebutolol Casanthranol: Pediacare Ergocalciferol:

Debt Covenants

Unlike equity investors, debtholders typically cannot receive more than the face value of their bonds. However, poor performance by the company could cause debtholders to receive less than face value. While equity investors benefit disproportionately when risky projects succeed, bondholders can suffer if they fail. Since owners have an incentive for management to take risks that may be costly to bondholders, bondholders typically require contractual limitations on that behavior. These limitations are known as covenants.

Common covenants include restrictions against issuing more debt, requiring that a minimum level of working capital be kept, limits on certain ratios such as interest coverage or debt/equity, assets to be used as collateral and even restrictions on how the borrowed funds may be used.

When covenants are violated, the bonds are said to be in default. At that time the issuer and bondholders must negotiate a new agreement, which could be as simple as the covenant being temporarily or permanently waived, to outright renegotiation or redemption of the debt. Typically a certain minimum number of bondholders will negotiate the new terms on behalf of all bondholders.

Equity investors should also be aware of the company’s bond covenants and monitor any ratios that could trigger default. A company forced to make significant concessions to bondholders could have serious consequences for the equity as well.

For more information, see all articles on: Fixed income investments, Investing in bonds

See also:
  • Current Portion of Debt, or Debt Maturing Within One Year
  • Accounting for Debt Retirement
  • Debt to Equity
  • Analyzing Convertible Debt
  • Restructured or Impaired Debt
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

    One Response to “Debt Covenants”

    1. My Estate Planning Career Blog » Blog Archive » festival of investing - July 17, 2007 Says:

      [...] presents Debt Covenants posted at Financial [...]

    Leave a Reply

    You must be logged in to post a comment.

    ss_blog_claim=03ab3ad958d87eac8403bc8f2fe29a6d