Covenants include?
- Dividend restrictions - Limitations on the level of dividends a company is permitted to pay. This is designed to prevent excessive dividend payments which may seriously weaken the company's future cash flows and thereby place the lender at greater risk.
- Financial ratios - Specified levels below which certain ratios may not fall, e.g. debt to net assets ratio, current ratio.
- Financial reports - Regular accounts and financial reports to be provided to the lender to monitor progress.
- Issue of further debt - The amount and type of debt that can be issued may be restricted. Subordinated debt (i.e. debt ranking below the existing unsecured debt) can usually still be issued
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