Affirmative covenant
A promise in the loan agreement about what the borrower will do — pay on time, insure the assets, deliver audited accounts.
Where you will meet it
Affirmative covenant appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain what a bond indenture is and the positive and restrictive covenants in it
“Affirmative covenants state what the issuer must do — pay interest and principal on time, maintain its properties, supply audited financial statements.”
- Say why debt covenants exist and what they do
“Affirmative covenants require actions — maintaining insurance, supplying financial statements, keeping a ratio above a threshold.”
Practise it
Practise affirmative covenant until it is automatic: questions that explain every wrong option.
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