What is incurrence covenant?
An incurrence covenant provides that an issuer may take a specified action (such as incurring debt, paying dividends, repurchasing its shares or making certain investments) only if, upon completing the action and pro forma for its occurrence, the issuer meets the test prescribed by that covenant.
What is an incurrence and a maintenance covenant?
Maintenance covenants are tested regularly — often as frequently as every three months — and are common for heavily indebted companies, for example companies bought out by private equity firms using leverage. Incurrence covenants are tested for a specific event, such as when a borrower wishes to take out more debt.
What is the difference between a positive debt covenant and a negative debt covenant?
Common restrictions placed on borrowers through negative covenants include preventing a bond issuer from issuing more debt until one or more series of bonds have matured. A negative covenant contrasts with a positive covenant, which is a clause in a loan agreement that requires the firm to take certain actions.
What is a negative covenant?
A negative covenant, also known as a restrictive covenant, is a covenant that restricts one party from carrying out certain actions. Sometimes the agreement involves some form of compensation.
What does incurrence mean?
noun. the act of incurring, bringing on, or subjecting oneself to something.
What is incurrence of debt?
Debt Incurrence means the issuance for cash proceeds by the Borrower or any of its Subsidiaries of any debt security having a maturity in excess of one year, other than any such issuance (i) to the Borrower or a Subsidiary or (ii) pursuant to a Working Capital Facility.
What is a maintenance covenant?
Maintenance Covenant means a covenant by any Obligor to comply with one or more financial covenants during each reporting period, whether or not such Obligor has taken any specified action.
Do positive covenants run with the land?
Positive covenants, by contrast, differ from the restrictive covenants in two respects. Firstly, they do not run with the land which means unless there is a chain of indemnity or a renewed covenant between the parties, the burden of the positive covenant (such as repairing a fence) does not pass on to the new owner.
What is affirmative covenant?
An affirmative covenant is a type of promise or contract that requires a party to adhere to certain terms. For example, an affirmative bond covenant could provide that an issuer maintain adequate levels of insurance or deliver audited financial statements.
What is incurrence liability?
Short definition. Net incurrence of government liabilities includes foreign financing (obtained from nonresidents) and domestic financing (obtained from residents), or the means by which a government provides financial resources to cover a budget deficit or allocates financial resources arising from a budget surplus.