There are fundamental differences between the covenants of high yield and investment grade debt securities. While investment grade covenants are less restrictive and more limited, high yield covenants tend to be much more onerous as a result of the creditworthiness of the issuer. This checklist outlines key debt covenants and explains their differences. A covenant is a promise to take an action (an affirmative covenant) or to refrain from taking an action (a negative covenant). Negative covenants in bonds are typically based on incurrence tests. These covenants cannot be breached except by incurring or taking some affirmative action, such as incurring debt or a lien or making a restricted payment, beyond what is permitted under the covenant. Incurrence-based covenants differ from maintenance covenants, which are common to credit facilities and must be maintained at all times or tested at regular intervals (such as maintaining a certain leverage ratio). Covenants in debt securities are ...