Covenants refer to specific clauses in contract agreements between two or more parties and are set in place to protect the interests of various stakeholders. The clauses, usually both financial and non financial, typically refer to both the offtake agreement as well as the lending agreement between a SPV and the bank.
Some common financial covenants include: minimum debt service coverage ratio (DSCR) requirements; interest coverage ratios; and prepayment options. Non-financial covenants (positive and negative) protect parties against events like construction delays, cost overruns, or extraordinary instances such as the revocation of licenses or permits.