A bond covenant is a legal provision in the bond contract that sets restrictions on the issuer to protect investors. For example, covenants may require the issuer to:
· raise enough taxes and fees to pay debt service
· maintain the financed facility at an acceptable level and provide casualty insurance
· not issue new bonds or debt unless certain thresholds are met such as revenues available for debt service are at least 1.25 times the amount needed for proposed and outstanding debt
· not take any action that would change the tax status of the bonds from tax-exempt to taxable.
