Negative Covenant

Definition:

A bond Covenant in an Indenture that restricts certain activities of the issuer but is generally subject to Carve-Outs within the agreement creating the bond issue. A greater number of Negative Covenants may contribute to lowering the Interest Rate on the debt. For example, a Negative Covenant may reduce the issuer’s ability to dispose of parts of its business or borrow additional money. Also known as a Restrictive Covenant.

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