H. LONG-TERM DEBT - 2. DEBT COVENANTS

Question 1

_{H. LONG-TERM DEBT - 2. DEBT COVENANTS}

DEBT COVENANTS

Answer 1

DEBT COVENANTS

• These are when a creditor gives a debtor specific covenants that they have to meet.
• These are usually financial ratios that the debtor has to stay within a certain range of, for example, total liabilities to tangible net worth.
• If the debtor falls “out of covenant”, there are penalties such as the debt being due immediately.