Beginner
What is the difference between a maintenance covenant and an incurrence covenant?
- A. Maintenance covenants restrict dividends while incurrence covenants restrict capex
- B. Maintenance covenants apply to bonds and incurrence covenants apply to loans
- C. Incurrence covenants are tested quarterly and maintenance covenants only at maturity
- D. Maintenance covenants are tested regularly (usually quarterly) regardless of the borrower's actions; incurrence covenants are tested only when the borrower takes a specific action like raising new debtCorrect
Takeaway. Maintenance covenants test on the calendar; incurrence covenants test only when the borrower acts.
