Negative Covenants in Credit Agreements


Summary

This practice note describes negative covenants and the related definitions, which are among the most heavily negotiated provisions in a credit agreement. To get comfortable funding loans to a borrower, lenders often require negative covenant restrictions on a borrower's operations to keep management on a path towards timely repayment of the loans at maturity. Lenders also use negative covenants to force borrowers to seek amendments from lenders rather than materially altering their business operations.