Limitation on Liens Covenant
(High-Yield Indenture)

This clause is a “Limitation on Liens” covenant intended for use in a high-yield indenture. This clause contains practical guidance and drafting notes. The covenant is standard for a high-yield debt offering, and required by investors to limit the issuer’s ability to dissipate its assets through unfavorable encumbrances on its property that are senior to the debt owed pursuant to the high yield bonds. If the issuer permits any liens other than Permitted Liens, then often the covenant requires that the high-yield notes be equally secured. Key defined terms used in the covenant are also included. For more information on drafting an indenture, see Indenture Drafting for a Rule 144A / Regulation S Issuance.