Covenants, in the financial context, are found in debt agreements, e.g., loans or bonds. These covenants are promises agreed to by the borrower in a bond/loan documentation/agreement. Covenants are put in place to protect the lender from the borrower going bankrupt or to help ensure the borrower will pay back their loan in a timely manner. Most financial covenants are found in the form of financial ratios that the borrower has to maintain, e.g., total assets to debt, interest coverage ratio or a debt to equity ratio, to name a few.
