Covenants that place direct restrictions on managerial decisions are called

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Negative covenants are contractual clauses that limit or prohibit certain actions or decisions by the borrower or management. They typically include restrictions on mergers and acquisitions, dividends, new debt issuances, and asset sales. The purpose of negative covenants is to protect the interests of lenders or bondholders by mitigating the risk of default, reducing agency costs, and maintaining the collateral value of the underlying assets. Affirmative covenants, on the other hand, require the borrower to fulfill certain obligations or provide certain information, such as maintaining insurance, paying taxes, or submitting financial statements, but they do not directly restrict managerial decisions.

Covenants That Place Direct Restrictions on Managerial Decisions Are Called