Bond covenants

Bond covenants are legally binding conditions written into the bond indenture that the issuer agrees to comply with during the life of the bond, designed to protect bondholder interests. Affirmative covenants require the issuer to take certain actions—such as maintaining insurance, providing regular financial statements, and preserving assets. Negative (restrictive) covenants prohibit certain actions—such as taking on additional debt above a defined limit, paying dividends beyond a set threshold, or selling key assets. In India, corporate bond covenants are monitored by the debenture trustee. A breach of covenants typically triggers a default event, giving bondholders the right to demand immediate repayment.