incurrence test

incurrence test
USA
A financial ratio test for covenant compliance that needs to be met at the time specific actions occur (rather than a maintenance test which needs to be met at regular intervals, such as quarterly or at all times). For example, the borrower may be permitted to incur debt as long as the leverage ratio is less than 3.0:1.0. The effect is that the lender has no recourse against the borrower until the specific action occurs and the ratio is not met.
Incurrence based covenants are typical for high-yield bonds. Financial covenants in bank loans traditionally are maintenance tests that need to be maintained at regular intervals (or at all times) so that the lender has recourse against the borrower if its financial condition deteriorates.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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Look at other dictionaries:

  • maintenance test — USA A financial ratio test for covenant compliance that needs to be met at regular intervals (such as quarterly or the end of each fiscal quarter). For example, the borrower may be required to maintain a leverage ratio of less than 3.0:1.0. The… …   Law dictionary

  • covenant-lite — USA A type of loan facility which has less financial covenant restrictions than is ordinarily required. Covenant lite loan facilities take various forms but may be broadly characterized as senior syndicated leveraged loan facilities with the… …   Law dictionary

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