Financial Covenants

By signing a series of written guarantees, generally referred to as financial covenants, borrowers agree to keep to a range of key figures in terms of the level of debt, their own capital reserves, and liquidity. If the borrower goes against these terms, the lender has the right to terminate the loan contract.

As a result of the financial crisis, these covenants are becoming more important than ever. Within many loan agreements already in existence, borrowers are often guilty of multiple infringements on the terms of the covenants, which were signed in boom times on the basis of far more optimistic scenarios. In new loans negotiations and agreements, too, covenants are increasingly in focus.
In situations in which a breach of covenants seems likely, we support management in reporting to shareholders and lenders in order to strengthen confidence in the borrower’s ability to pay back the loan in full.