Maintenance Vs Incurrence Covenants

This question practices a core covenant concept that comes up often in leveraged finance interviews, namely when lenders require a borrower to prove compliance. Candidates need to understand the difference between recurring monitoring and event driven testing, and be able to explain how each type of covenant affects borrower flexibility, lender protection, and default risk. Interviewers ask this because covenant mechanics are fundamental to evaluating credit terms, negotiating financing agreements, and understanding how debt documents control a company after issuance.