Template:AI Negative covenant

A negative covenant is a promise made by the borrower to refrain from certain actions that could negatively affect its ability to repay the loan. These are restrictions placed on the borrower to help ensure continued creditworthiness such that the borrower can repay its loans to the lender.

For example, a negative covenant might prohibit the borrower from taking on additional debt, selling certain assets, or making certain changes to the business without the lender’s permission. The specific negative covenants will vary depending on the terms of the loan agreement.

If you are a british full-service commercial and investment bank, having a negative covenant buried in some long dated subordinated bond you issued ages ago but which doesn’t roll off for another five years is a real pisser.