Loan Covenants

From Open Risk Manual

Definition

Loan Covenants are a collection of possible clauses in a bilateral Loan contract which typically aim to mitigate Credit Risk for the lender.

Typical Covenants

Covenants can take any agreed shape and may reflect the specific circumstances of the lending relationship, the project being financed etc.

Some typical clauses involve trigger events linked to standard ratios such as

The triggering of a loan covenant means the terms of the loan repayment are accelerating and may be placing other legal restrictions on the possible actions of the borrower

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