Affirmative Covenant (Financial Restructuring & Bankruptcy Glossary)

Summary

A covenant in a loan agreement that requires the company to take certain actions. Examples of affirmative covenants include promises by the company to: (i) comply with financial reporting obligations; (ii) keep accurate books and records; (iii) comply with applicable law and regulations; (iv) maintain appropriate insurance; and (v) pay all taxes and fees when due. Examples of a negative covenant include promises by the company not to: (i) incur additional indebtedness; (ii) pledge or grant a lien on any of the company’s assets; and (iii) sell, lease, or transfer substantial assets during the term of the loan agreement without the lender’s consent.