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Debt covenants

• Debt covenants spell out the details of the debt contract. For instance, the level and the timing of the promised interest rate and principal payments are explicitly stated. The covenants restrict the ability of the borrower to increase the risk of the firm after debt is taken on, or drain the assets of the firm. They are also designed to provide early warning signals if the health of the firm begins to weaken.

 
 

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 Assets
Contract
Covenants
Debt
Firm
Interest rate
Interest
Out
Principal
Risk
 
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