hard · Debt Capital Markets bond-instruments-structures

An issuer has a 'Negative Pledge' covenant in its bond indenture. This covenant primarily functions to:

1. Restrict the issuer from granting liens to other creditors without providing equal security to the bondholders.
2. Permanently bar the company from ever issuing any form of secured debt obligation going forward at all.
3. Compel the borrower to maintain a defined minimum level of unencumbered, freely available liquidity at all times.
4. Prevent the issuer from distributing any dividends or making other shareholder payments while the debt remains outstanding.

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