• A negative covenant is an agreement that restricts a company from doing certain things - it’s a promise to do nothing.

  • For example, an agreement with a public company may limit the amount of dividends the firm can pay to its shareholders.
  • General restrictions imposed on borrowers through negative covenants include prohibiting a bond issuer from issuing new debt until one or more bond series mature.
  • A negative covenant contrasts with a positive covenant, which is a clause in a loan agreement that requires the firm to perform certain actions.