CHAPTER 7
Covenants
7.1 SOME GENERAL PRINCIPLES
Covenants can be divided into three categories: financial covenants, affirmative covenants, and negative covenants. Many credit agreements create a separate section or article for each of the three categories, but frequently financial covenants are treated as negative covenants and included within the same section. As the labels might suggest, affirmative covenants stipulate what borrowers must do, negative covenants describe what borrowers are prohibited from doing (though subject to highly negotiated permissive exceptions), and financial covenants require the borrower to hit certain financial performance targets.
Beyond these pithy descriptions, there also is a deeper substantive difference between ...
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