2.4.5.4 System Covenants

Covenants relating to the management of an issuer enterprise system are important in revenue bond financings. See Section 3.3.6, Enterprise Fund Debt Obligations. These may include covenants to do the following:

Charge and collect for services provided.
Set rates at levels sufficient to produce net revenues with a minimum specified ratio to debt service (e.g., Net revenues must equal at least 1.25 times debt service). This is known as a “rate covenant.”
Not allow competing facilities.
Keep system facilities in good working order and free of liens and pay operating expenses.
Not sell property essential to the operation of the system.
Maintain customary insurance coverage.