Five Points for Issuers to Consider When Preparing Covenant Package for High-Yield Notes Offering

High-yield covenants usually, among other restrictions, restrict an issuer’s ability to incur debt, make restricted payments (restricted payments can include making certain dividends, equity repurchases, investments and payments on subordinated debt) and sell assets. These covenants can contain exceptions that a) generally permit particular types of transactions, b) permit transactions in any amount so long as a ratio test is satisfied (for example, the ability to incur debt so long as the interest coverage ratio would be at least 2.0 to 1.0) or c) provide baskets permitting transactions up to an amount not tied to a ratio test.