what is a debt covenant calculation
Debt covenants are used to solve the agency problems among the management (i.e., of the borrowing company), debt holders, and shareholders that arise due to the differences in the objectives of the borrower and the lender. Debt covenants can be either positive or negative. Negative debt covenants state what the borrower cannot do and may include the following: 1  Incur additional long-term debt (or require that additional borrowing be subordinated to the original indenture).