Shearman & Sterling LLP
Issue link: https://digital.shearman.com/i/1494417
Purpose of Covenants 16 Covenants are designed to preserve cash flow for debt service while allowing the Company the flexibility to execute its business plan and grow Covenants generally work to maintain credit quality by: 01 02 03 04 05 Preventing the Company from becoming disproportionally over- leveraged Restricting payments to holders of equity and junior capital Restricting investments in unrestricted entities Restricting sales of assets Protect the ranking of the various classes of debt in the capital structure 06 But each restriction is subject to covenants with significant exceptions The Debt Stack – Structuring and Incurrence Covenants