| Covenant | |
 A promise in an indenture, or any other formal debt agreement, that certain activities will or will not be carried out. |
|
 The purpose of a covenant is to give the lender more security. Covenants can cover everything from minimum dividend payments to levels that must be maintained in working capital. |
|
 Red Flag Phrases: "Material Adverse Effect" - By recognizing key phrases such as "material adverse effect", investors can pick up on the red flags found in legal boilerplate. |
|
Related Terms
 |