In the practicum this morning we discussed how to help a student looking for bond covenants but we never defined what a covenant was. Covenants are restrictions on the activity of bond issuers that protect the bondholders. They include things like limits on how the borrowed funds can be used, restrictions against issuing more debt, or setting certain ratio requirements or working capital levels. When covenants are violated, the bonds are in default.
Provisions of the covenants for a particular bond will usually be found in the bond prospectus or a supplement to the prospectus. Thomson Research provides the most comprehensive collection of prospectuses for both U.S. and foreign corporations.
There are two databases that can be used to find a list of the bonds that a company has issued. The SDC new issues database probably has the most complete list including bonds that have been recalled. Students might find it easier to use Mergent Online which in one of the company tabs lists all the long term debt and capital stock outstanding.
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