Maintenance Covenant
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
A covenant requiring continuous satisfaction of a financial test, tested quarterly. Common examples include max Net Debt/EBITDA, min Interest Coverage, and min Liquidity; breach without cure constitutes an event of default.
Maintenance Covenant in plain English
A maintenance covenant is a promise a borrower must keep true at all times, re-checked every three months — not just on the day they take the loan, but continuously. Typical tests are things like 'your debt must stay below X times your annual profit' or 'your profit must be at least Y times your interest bill.' The word 'maintenance' is the key: you have to maintain the healthy number the whole time, and if you slip past the line and can't fix it fast, the lender can declare a default and potentially demand all their money back immediately. It's like a gym membership that requires you to stay under a certain weight — they weigh you every quarter, and failing the weigh-in has real consequences, not just a warning.
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