M&A
Covenant
Reviewed by iGaming Times editorial teamLast reviewed 24 September 2026
What is Covenant?
A condition in a loan or bond agreement that the borrower must satisfy, commonly a maximum leverage ratio or a minimum interest cover. Breach gives lenders rights, including the right to demand repayment.
Key takeaways
- A covenant is a loan or bond condition the borrower must meet, commonly a maximum leverage ratio or minimum interest cover.
- A breach gives lenders rights, and usually ends in a waiver or reset in exchange for fees, margin or security.
- For gambling operators, a lost concession or licence, or a duty increase, can breach a leverage covenant in one period.
Why it matters
Covenants are where financial pressure becomes an event. A business can operate at a loss for a long time provided it holds cash, but a covenant breach hands lenders a decision, and that decision may arrive long before the company would otherwise have run out of room.
The usual outcome is negotiation rather than enforcement. Lenders grant a waiver, reset the level or amend terms in exchange for fees, a higher margin or additional security, so a breach frequently surfaces in disclosure as a technical matter that has already been resolved. It is nonetheless a signal, because it establishes that the company's performance has moved outside the range its financing assumed.
For gambling operators the risk concentrates around structural change. A lost concession, a licence not renewed or a duty increase can move earnings enough to breach a leverage covenant in a single reporting period.
The bottom line
A covenant converts underperformance into a deadline. The question is never only whether a company is losing money but whether losing it breaks an agreement.
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Frequently asked questions
What is a covenant in a loan agreement?
A covenant is a condition in a loan or bond agreement that the borrower must satisfy for as long as the debt is outstanding. Financial covenants commonly set a maximum leverage ratio, such as debt to EBITDA, or a minimum interest cover. If the borrower breaches one, lenders gain rights under the agreement, which can include the right to demand repayment.
What happens when a company breaches a covenant?
The usual outcome is negotiation rather than enforcement. Lenders typically grant a waiver, reset the covenant level or amend terms in exchange for fees, a higher margin or additional security. A breach therefore often appears in disclosure as a technical matter already resolved, but it still signals that performance has moved outside the range the financing assumed.
Why do covenants matter for gambling companies?
Gambling is a leveraged sector, and its earnings can change sharply with regulation. A lost concession, a licence that is not renewed or a duty increase can move earnings enough to breach a leverage covenant in a single reporting period. That turns underperformance into a deadline, because lenders then have a decision to make about the company.