A covenant that requires the borrower to continuously meet certain financial ratios (such as leverage or coverage ratios) at regular intervals—typically quarterly, regardless of whether any specific action is taken. It provides lenders with ongoing monitoring of the company’s financial health, unlike incurrence tests which are only triggered by specific events.

Learn more about covenants in our Legal Primer: Safeguarding Credit Quality and Asset Value. In this webinar, Apostolos Gkoutzinis, Head of EMEA Capital Markets and Co-Head of European Leveraged Finance, Milbank LLP explains the principal techniques to safeguard the restricted group in leveraged finance and high-yield documentation.