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
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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
Less mature markets, oddly, are starting to look safer: taking no chances, funds lending there insist on robust covenants. — The Economist, "Buy-out firms are the new banks in emerging markets," 21 June 2019 Friends of Lubavitch was ordered to tear down the building by March 1 this year after losing the setback covenant case. — Libby Solomon, baltimoresun.com, "Receiver appointed to carry out Chabad teardown order," 23 May 2018 Those covenants were put in place because citizen groups were concerned about the sale of a nonprofit to a for-profit. — David Jesse, Detroit Free Press, "DMC, Wayne State fight for years with millions of dollars and care of poor at stake," 20 June 2019 For example, lenders can build covenant mechanisms into their loans to trigger cash flow sweeps that would help them de-leverage, said Denise Colletta, senior VP and team leader in the City National Bank entertainment division. — Ed Christman, Billboard, "Future Looks Bright in Streaming Age, Say Wall Street Experts at AIMP Indie Music Publishing Summit," 11 June 2019 Less mature markets, oddly, are starting to look safer: taking no chances, funds lending there insist on robust covenants. — The Economist, "Buy-out firms are the new banks in emerging markets," 14 June 2019 As Refinitiv marketed its bonds, analysts warned its covenants would likely lower the bar for future deals. — Soma Biswas, WSJ, "The Case of the Disappearing Collateral," 15 Nov. 2018 Electric truck and drone developer Workhorse Group Inc. reached a deal with lender Marathon Asset Management LP to relax financial covenants on a $35 million financing package as the company tries to meet demand for its vehicles. — Andrew Scurria, WSJ, "Struggling Electric Vehicle Maker Workhorse Gets a Little Breathing Room," 3 Apr. 2019 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. 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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