Incurrence Covenant

Private Credit Glossary

Covenant tested only when the borrower takes a specified action (incurring new debt, paying a dividend, making an acquisition, making a restricted payment). Contrast with a maintenance covenant, which is tested every quarter regardless of borrower behavior. Incurrence covenants are universal in high-yield bonds and BSL TLBs but offer the lender no early warning during deterioration — the borrower can stay passive and the covenant never runs.

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