What does a covenant related to a bond typically specify?

A covenant related to a bond typically specifies the legal terms associated with the bond issue. Covenants are clauses within the bond agreement that outline specific obligations and restrictions that the issuer must adhere to throughout the life of the bond. These legal terms can include requirements related to the issuer's financial metrics, such as maintaining certain debt service coverage ratios or prohibiting additional debt without consent from bondholders. They might also set conditions on how the proceeds from the bond are to be used or stipulate actions to be taken if the issuer faces financial difficulties. By defining these legal terms, covenants protect bondholders' interests and help ensure that the issuer maintains a certain level of financial discipline.