Debt Covenants
Debt covenants are contractual obligations and restrictions in loan agreements that borrowers must maintain, protecting lender interests through financial and operational requirements.
| Covenant Type | Requirement |
| Loan-to-value (LTV) | Maximum 75%, tested at origination and annually |
| Debt service coverage ratio (DSCR) | Minimum 1.25x to 1.35x |
| Debt yield | Minimum 8% to 10% |
| Cash flow sweep | Excess cash applied to principal |
| Reserve requirements | Maintain minimum operating reserves |
| Occupancy floor | Minimum 85% to 90% occupancy |
| Negative Covenants | Restriction |
| Additional debt | No junior liens without approval |
| Asset sales | Cannot sell property or major components |
| Distributions | Limited or blocked if covenants violated |
| Major changes | Tenant mix, use, or management require consent |
| Default consequences | Accelerated maturity, higher interest, foreclosure |
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