16. Key Leveraged Finance Covenants

What’s in this chapter:

• How key covenants work: debt incurrence, restricted payments, change of control

• How defined terms impact covenants

• How carve-outs to covenants typically work

• Affirmative/maintenance covenants and what they do

• The concepts of restricted and unrestricted groups

Understanding and analyzing covenants is an important part of leveraged finance credit analysis. Each bond indenture or loan agreement has covenants, which are effectively rules that the company has to follow as long as these debt instruments are outstanding. The covenants in leveraged finance tend to be much more complex than investment-grade debt issues because of the greater risks and sometimes more complex capital ...

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