Hello, You are given three alternatives:
- Seek lender approval to pay dividend
- Ensure that ships are insured
- Maintain a minimum level of working capital
Do you have any tricks to sort out which ones that are either an affirmative or a negative covenant? Or will the question on the exam be less vague by stating, for instance, “The bank requires that the company maintain a minimum level of working capital”? Thanks!
I can’t think of any generalization.
You have your thou shalts and your thou shalt nots. That’s about it.
Sorry.
Other than negative covenants restrict you from doing something. So paying your taxes on time isn’t a negative covenant but saying you can’t pay dividends is.
- Seek lender approval to pay dividend - negative covenant
- Ensure that ships are insured - positive covenant
- Maintain a minimum level of working capital - positive covenant
Maybe I’m off base here.