covenant
noun
, ˈkə-və-\
Definition of covenant
(Entry 1 of 2)
covenant
verb
, -ˌnant, ˈkə-və-\
Definition of covenant (Entry 2 of 2)
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Other Words from covenant
Noun
\
adjective
Synonyms & Antonyms for covenant
Synonyms: Noun
accord, alliance, compact, convention, pact, treaty
Synonyms: Verb
Antonyms: Verb
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Examples of covenant in a Sentence
Noun
an international covenant on human rights The restrictive covenants of the building development prohibit the construction of buildings over 30 feet tall.Verb
a traditional rule held that a husband could not enter into a covenant with his wife, because that was the equivalent of covenanting with himself the home buyers had to covenant that they would restore and keep the house for at least 10 years in exchange for a low mortgage rate
Recent Examples on the Web: Noun
Apparently, were SpaceX to seek a greater loan amount, investors would have wanted stronger loan covenants. — Eric Berger, Ars Technica, "What is going on with SpaceX and all these Big Falcon Rocket changes?," 20 Nov. 2018 And anti-Semitism by covenant ensured that Jewish families could only live in certain neighborhoods. — Dan Rodricks, baltimoresun.com, "Rodricks: For Baltimore's vacant homes, why not a buyer's club?," 18 Apr. 2018 Estridge told IndyStar his plans were undone by covenants former owner Ruth Lilly placed upon the land in 1959 to limit development to homes on large lots. — David Lindquist, Indianapolis Star, "Simon estate in Carmel may become Songbook Foundation museum," 4 Jan. 2018 ZoomSystems filed for bankruptcy in 2015 after several customer projects hit delays and the company breached debt covenants. — Alison Sider, WSJ, "Racing for Your Flight but Need a Winter Coat? Try the Airport Vending Machine," 14 Nov. 2018 Last week the 18-member Human Rights Committee in Geneva ruled unanimously that, in the case of Mr. Arias, Colombia has failed to uphold its obligations under the covenant. — Mary Anastasia O’grady, WSJ, "A Cynical Trade With Colombia," 18 Nov. 2018 In particular, SoundCloud says the broad language regarding the covenant not to sue has been removed. — Dani Deahl, The Verge, "SoundCloud pulls controversial contract terms after Verge report," 29 Oct. 2018 The 2015 suit asked for $200 million for constructive termination, breach of contract, and breach of covenant of good faith and fair dealing. — Sean Elder, Town & Country, "The War of The Grosses: Inside the Bitter Divorce Battle of the Laguna Beach "Bond King"," 22 Oct. 2018 Those plans will include ideas on how best to protect that property, whether through acquisition, or a restricted covenant on the deed or a conservation easement, for example. — Emily Hopkins, Indianapolis Star, "A lack of trees might hurt Indianapolis’ growth. Here’s why.," 4 June 2018Recent Examples on the Web: Verb
USA TODAY NETWORK LOS ANGELES — Alien: Covenant edged out Guardians of the Galaxy Vol. 2 in a weekend space battle at the box office. — Sandy Cohen, USA TODAY, "'Alien: Covenant' edges out 'Guardians 2' at weekend box office with $36M," 21 May 2017These example sentences are selected automatically from various online news sources to reflect current usage of the word 'covenant.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
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More Definitions for covenant
covenant
nounFinancial Definition of covenant
How It Works
Covenants are most common in lending agreements and bond indentures. They can be financial or operational in nature.
Operational covenants often require borrowers to maintain their physical assets to certain standards, meet minimum disclosure requirements, engage only in permissible business lines, or maintain a certain level of insurance.
Financial covenants are frequently ratios that the borrower is required to stay above or below (a 2:1 debt-to-equity ratio or interest coverage ratio, for example), but there are usually also restrictions on debt levels and minimum working capital requirements. Financial covenants often limit the borrower's purchase of new assets, changes in control, the use of the borrowed funds, and the payment of dividends (so that shareholders cannot vote to pay themselves huge dividends, leaving nothing for the creditors). Some may also limit compensation packages for officers.
The lending agreement in which the covenant appears will also provide detailed formulas to be used to calculate the ratios and limits. It is important to note that in many cases these formulas do not conform to generally accepted accounting principals (GAAP). For example, the covenant may include leases in the debt calculation, or it may consider capital leases as an expense. As a result, it is very important that borrowers scrutinize covenants before borrowing.
Violating a covenant can trigger a technical default. This means that although the issuer is making interest and principal payments on time, it is not operating within the agreed-upon guidelines and is thus increasing the risk of default in the eyes of the lender or bondholders. Often borrowers have a certain amount of time to remedy the technical default, but it often lowers the borrower's credit rating and stock price.
Why It Matters
Lenders attach covenants to bond issues and loans as a way to force the borrower to operate in a financially prudent manner that ensures it will repay the debt. Issuers, on the other hand, usually negotiate the most flexible covenants they can so they have the freedom to make decisions and take risks that might ultimately benefit the shareholders. In either case, covenants act as a safety mechanism that allows both parties to achieve its goals.
Source: Investing Answers
covenant
noun
English Language Learners Definition of covenant
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noun
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covenant
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Legal Definition of covenant
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