Covenants

4 Key excerpts on "Covenants"

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  eBook - PDF

  Encyclopedia of Alternative Investments

  • Greg N. Gregoriou(Author)
  • 2008(Publication Date)
  • Chapman and Hall/CRC

    (Publisher)

  Covenants ma y limit the actions of current or potential new owners in merger or d ivestiture . W hile ne g ative Covenants limit the actions o f t h e compan y , ot h er Covenants require a c ompany to take positive actions that serve to re d uce t h e ris k o f d e f au l t. Covenants ma y require a company to maintain adequate liquid assets to reduce the risk of cash short-f a ll . Companies may b e require d to h ave adequate insurance for a variet y of business ris k s. Covenants may require t h e b orrower to invest in the upkeep of assets. Covenants in existin g in d entures can become overly restrictive as business con-d itions an d corporate strate g ies c h an g e. Companies cannot unilaterally change c ovenants in outstandin g indentures but l en d ers can agree to ma k e c h anges to cove-nants. Sometimes , lenders will make minor ch anges w h en t h e c h anges d on’t materi-ally affect the risk of default. Other times, a b on dh o ld er ma y a g ree to e l iminate or re l a x c ovenants if the change permits profitable g rowt h , w h ic h in d irect ly re d uces t h e ris k o f default. Sometimes, a borrower will as k o t h er b orrowers to re l ax or e l iminate cov-e nants in return f or a h ig h er coupon or to ti g hten a different covenant that reduces the ris k to t h e b orrower . R EFEREN C E G arner, B. A. (2004) B l ac k ’s Law Dictionary. Th o m so n West Pu bl is h ing, St. Pau l , MN. C ovenants ( Venture C a p ital and Private E qu i ty Context ) B rian L . K in g McGi ll Universit y Mo ntr é al , Qué b ec, Cana da Covenants, in the private equity and ven-ture capita l context, are k e y contract Covenants ( Venture Capital and Private Equit y Context ) • 119 stipulations that bind a firm and restrict its a ctions. A covenant is a g enera l l e g a l term for a signed, written agreement binding two or more parties.

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  Make the Deal

  Negotiating Mergers and Acquisitions

  • Christopher S. Harrison(Author)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 7 Covenants

  Covenants in M&A Negotiations

  Covenants are a collection of agreements between the parties to take or refrain from taking specific actions during—and in some cases after—the acquisition process.

  The operating Covenants govern the operation of the target’s business between signing and closing. The so-called “get the deal done” covenant, which is also referred to as the efforts covenant, obligates the parties to use their efforts to satisfy the closing conditions and to take actions designed to support bringing the deal to closing. An acquisition agreement may also include any number of other specific Covenants relevant to the transaction, such as a noncompete obligation by the seller, post-closing confidentiality arrangements, a restriction on the seller hiring or soliciting employees of the target business, or procedures to regulate the process for antitrust and other regulatory approvals.

  Some Covenants apply only between signing and closing, such as the operating Covenants and the covenant to use efforts to satisfy the closing conditions. Other Covenants are designed to apply only after closing, such as a restriction on the seller competing with the business it just sold in the transaction.

  Operating Covenants

  The operating Covenants balance the interests of the buyer and the seller in controlling how the business is run during the period between signing and closing. On the one hand, the buyer has committed itself to acquire the target, as long as the closing conditions are satisfied. The buyer wants to ensure that the business is appropriately managed until the buyer obtains control. On the other hand, the seller still owns the business and has an interest in managing it to ensure that the closing conditions are satisfied. The buyer has not yet paid the purchase price, so the seller does not want to cede control to the buyer without certainty that the closing will actually occur.

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  Land Law

  • Judith Bray(Author)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  11 Covenants

    11.1 The nature of Covenants

  1     A covenant is an obligation entered into by deed that affects the use of land for the benefit of another, e.g. a neighbour’s land is not to be used for business purposes.

  2     The agreement is made between the covenantee (who takes the benefit) and the covenantor (who carries the burden).

  3     The agreement is governed by the rules of contract as well as the rules of property law:

           the contract is enforceable between the original parties, but under the rule of privity of contract, a covenant at common law cannot impose burdens upon a third party;

           the original covenantor continues to be bound by the covenant even after he has left the property.

  4     Equity has intervened to allow the burden of Covenants to run in limited circumstances.

    11.2 Covenants at law

  1     Covenants at law can be traced back to the fourteenth century (Prior’s Case (1368)). A positive covenant that a prior and his convent would sing all week in the covenantee’s chapel was upheld, notwithstanding the fact that there was no servient tenement to carry the burden. This point was upheld in

  Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board

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  Contents of Commercial Contracts

  Terms Affecting Freedoms

  • Paul S Davies, Magda Raczynska, Paul S Davies, Magda Raczynska(Authors)
  • 2020(Publication Date)
  • Hart Publishing

    (Publisher)

  10 to finance charges). This chapter is focused on negative Covenants and not financial Covenants.

  D. Negative Covenants

  The negative Covenants, discussed in more detail in section V , are couched as obligations on the borrower not to do certain things. Typically, these will include the granting of security to anyone other than the lender, the incurring of debt to any other lender, the disposal of assets, the return of capital to shareholders, either in the form of dividends or otherwise, the entering into of any merger or other form of amalgamation, and any substantial change to the general nature of the business of the borrower. It will be clear from the nature of these matters that they cannot be completely prohibited or the borrower would not be able to function. As already mentioned, there will be exceptions, and these are likely to be quite heavily negotiated.

  E. Events of Default

  Breaches of any of the obligations mentioned will typically trigger an event of default under the loan agreement, which will also include other events of default that are not breaches of obligations but factual states. Examples of these include a change of control of the borrower,11 the enforcement of any security granted by the borrower, the execution of a judgment against the borrower, the commencement of insolvency proceedings in relation to the borrower, the borrower’s insolvency,12 a representation given by the borrower proving to be incorrect, cross-default (default by the borrower in relation to any other credit agreement) and (as a general ‘safety net’13

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