What type of covenants do bank debt typically include?

Bank debt typically includes maintenance covenants, which require the borrower to meet specific financial metrics on an ongoing basis throughout the duration of the loan. These metrics can include minimum interest coverage ratios, maximum leverage ratios, and minimum EBITDA levels, among others. The goal of these covenants is to ensure that the borrower remains financially stable and is able to service the debt appropriately.

Maintenance covenants provide lenders with a way to monitor the borrower's financial health regularly, allowing them to intervene if the company's performance deteriorates significantly, thus protecting their investment. In contrast, incurrence covenants are often associated with high-yield bonds and require the borrower to meet certain conditions before taking specific actions, like incurring additional debt or making capital expenditures. Default covenants refer to the specific events that would trigger a default on the loan, while performance covenants are more general and less frequently used in the context of bank debt specifically. Therefore, maintenance covenants are the most pertinent type typically included in bank debt agreements.