Contractual restriction governing borrower behavior, split into three types: (i) affirmative (actions the borrower must take — deliver financials, maintain insurance), (ii) negative (actions prohibited without lender consent — additional debt, dividends, asset sales, liens), and (iii) financial (quantitative tests like leverage and FCCR). In credit theory, financial covenants are modeled as a down-and-in barrier option (Black-Cox) — empirically worth sim 80–120 bps of spread on a typical 5–6× unitranche.