Debt limitation

A bond covenant that restricts the firm's ability to incur additional indebtedness in some way.

Debt Limitation

A negative covenant in a bond indenture limiting the issuer's ability to acquire more debt before the bond matures. Debt limitation may take a variety of forms. For example, the indenture may restrict the debt service coverage ratio, meaning that the company can acquire theoretically unlimited debt provided it increases it income to such a level that it can service the debt. On the other hand, debt limitation may set a maximum dollar amount of debt that the issuer may acquire during the life of the bond, or even may prevent the issuer from becoming any more indebted at all. These latter debt limitations are more likely when the issuer is not on sound financial footing and possibly is issuing junk bonds. A debt limitation should not be confused with a debt limit, which is similar but is a legal requirement on a government.

单词	debt limitation
释义	Debt limitation Debt limitation A bond covenant that restricts the firm's ability to incur additional indebtedness in some way. Debt Limitation A negative covenant in a bond indenture limiting the issuer's ability to acquire more debt before the bond matures. Debt limitation may take a variety of forms. For example, the indenture may restrict the debt service coverage ratio, meaning that the company can acquire theoretically unlimited debt provided it increases it income to such a level that it can service the debt. On the other hand, debt limitation may set a maximum dollar amount of debt that the issuer may acquire during the life of the bond, or even may prevent the issuer from becoming any more indebted at all. These latter debt limitations are more likely when the issuer is not on sound financial footing and possibly is issuing junk bonds. A debt limitation should not be confused with a debt limit, which is similar but is a legal requirement on a government.
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