A clause in a borrowing agreement that requires the firm to maintain a given level of debt- equity is

Question

Quizplus · Accepted Answer

A clause in a borrowing agreement that requires the firm to maintain a given level of debt-equity is a positive covenant. Positive covenants are requirements that the borrower must fulfill, and failure to do so may result in default. In this case, the borrower is required to maintain a certain debt-to-equity ratio, which is a measure of how much debt a company has compared to its equity. This covenant is intended to ensure that the company is not taking on too much debt and is maintaining a healthy balance sheet.

A Clause in a Borrowing Agreement That Requires the Firm