Financial Covenants Clauses
(Credit Agreement)
Summary
These clauses are the standard Financial Covenant clauses for a credit agreement used in syndicated loan transactions to require the borrower to comply with negotiated financial performance standards. These clauses assure lenders that the borrower will be able to repay its loans as planned. These clauses include practical guidance, drafting notes, and optional clauses. In strong markets, lenders are often willing to make loans to borrowers pursuant to covenant-lite financings, which either do not include financial covenants or only include financial covenants that spring into effect if a certain minimum portion of the revolving facility is drawn and outstanding. See Affirmative, Negative, and Financial Covenants. These clauses include a number of common financial covenants. However, note that there is no one-size-fits-all suite of financial covenants for any borrower. The specific financial covenants included in a credit agreement should be selected and negotiated only after initial agreement between the lenders and borrower. The capitalized terms used in these sample provisions should be conformed to the defined terms in the relevant credit agreement. These clauses should be read in conjunction with the practice note Financial Covenants and EBITDA Calculations in Credit Agreements. For a full listing of key content covering a credit agreement, see Credit Agreement Resource Kit.