promise, commonly found in the form of restrictions in a loan agreement imposed on the borrower to protect the lender's interest. Examples of typical restrictive provisions are a ceiling on dividends and the required maintenance of a minimum working capital.

promise in a trust indenture or other formal debt agreement that certain acts will be performed and others refrained from. Designed to protect the lender's interest, covenants cover such matters as working capital, debt-equity ratios, and dividend payments. Also called restrictive covenant or protective covenant.

1. language in a loan agreement by which the borrower pledges to do certain things and refrain from others. An affirmative covenant may require the borrower to maintain adequate property insurance, make timely loan payments, and provide audited financial statements. Anegative covenant (also called arestrictive covenant) prohibits the borrower from selling or transferring assets, defaulting, or taking specific actions that would diminish the value of the collateral or impair the value of the lender's ability to collect the loan. Failure to perform as agreed might cause the lender to accelerate the loan, or call (demand full payment of) the loan.
2. enforceable clause in a bond contract protecting the interests of bondholders. There are various kinds of bond covenants: an agreement to charge sufficient fees, common in municipal bonds, to produce the required revenue (a rate covenant); an agreement not to sell or encumber the project (a negative covenant); an agreement to maintain adequate insurance and debt service (aprotective covenant).

1. to enter a formal agreement; to bind oneself in contract to make a stipulation.
2. agreement to do or not to do a particular thing.
3. promise incidental to a deed or contract, either expressed or implied.

promise written into deed and other instruments agreeing to performance or nonperformance of certain acts, or requiring or preventing certain uses of the property.

Example: Deed covenants are often used to:

• maintain a land parcel in a specified use such as residential
• enforce architectural and design standards
• control the density of future development
• prohibit certain practices, such as the sale of liquor