easy · Debt Capital Markets

In the context of credit covenants, what is the primary difference between a maintenance covenant and an incurrence covenant?

1. Maintenance covenants only apply to interest payments, while incurrence covenants apply to principal repayment.
2. Incurrence covenants are more protective for lenders because they catch a deterioration in business performance early.
3. Maintenance covenants are found in high-yield bonds, while incurrence covenants are found in bank loans.
4. Maintenance covenants are tested periodically regardless of company action, while incurrence covenants are only tested when a specific event occurs.

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