A protective covenant:

Question

Quizplus · Accepted Answer

A protective covenant is a provision in a bond agreement that limits the actions of the borrower to protect the interests of bondholders. It typically outlines certain requirements or restrictions on the borrower, such as maintaining a minimum level of financial performance, limiting additional debt issuance, or preserving collateral. This helps ensure that the borrower does not engage in activities that could jeopardize the ability to repay the bond, and protects the bondholders from potential losses.

A Protective Covenant