Financial covenants are used on a wide range of different kinds of banking transactions to monitor and test the financial performance of the borrowing company or group.

This Practice Note explains the use of financial covenants in a leveraged finance context. It explains:

1. •

   what is meant by financial covenants

2. •

   how financial covenants are used on leveraged finance transactions

3. •

   the covenant package traditionally used on a traditional leveraged finance transaction

4. •

   how financial covenants are tested

5. •

   other uses of financial ratios, and

6. •

   equity cure, mulligan and deemed cure provisions

See the Glossary of acquisition finance terms and jargon for the meaning of certain terms used in this Practice Note.