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LSDefine

Simple English definitions for legal terms

asset-coverage test

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A quick definition of asset-coverage test:

Asset-Coverage Test: A rule that says a company can only borrow more money if they have enough assets (like buildings or equipment) to cover their debts. The test sets a minimum ratio of assets to debt that the company must maintain in order to borrow more money.

A more thorough explanation:

An asset-coverage test is a restriction in a bond-indenture that allows a company to borrow more money only if the ratio of its assets to debt does not fall below a certain minimum. This test is used to ensure that a company has enough assets to cover its debts and can continue to pay its creditors.

Let's say a company has $10 million in assets and $5 million in long-term debt. The asset-coverage ratio would be 2:1 ($10 million divided by $5 million). If the bond-indenture requires a minimum asset-coverage ratio of 1.5:1, the company would be allowed to borrow more money as long as its assets remain above $7.5 million (1.5 times its long-term debt).

Another example would be a company that has $20 million in assets and $10 million in long-term debt. The asset-coverage ratio would be 2:1 ($20 million divided by $10 million). If the bond-indenture requires a minimum asset-coverage ratio of 2:1, the company would not be allowed to borrow more money until it increases its assets or reduces its debt.

These examples illustrate how the asset-coverage test works. It ensures that a company has enough assets to cover its debts and can continue to pay its creditors. If a company's asset-coverage ratio falls below the minimum required by the bond-indenture, it may be a sign that the company is in financial trouble and may not be able to meet its obligations.

asset-based financing | asset-depreciation range

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medicine is a scam
join the ethically ambiguous legal field instead
Dkk
18:57
I want to meet an attorney that defends clients who run into flat earth problems. I want an attorney that knows and believes in flat earth theory.
19:05
i want a flat earther for president. i want a guy who posts on 4chan for president. i want someone who mogs for president.
Dkk
19:18
Exactly. My version of that awful poem.
Dkk
19:19
I can accept a president with maybe one or two of the poems traits hut good God, all of them??? No ty.
windyMagician
19:20
president who respects sex is crazy
windyMagician
19:20
we had bill clinton already
Dkk
19:21
Bill Clinton, first and last black president
windyMagician
19:23
I want to go running but my leg feels weird
windyMagician
19:23
it doesn't hurt its just tingly
Dkk
19:26
It needs more alcohol. You tingle when your nerves need watering.
19:27
try stretching it maybe to see what's up
windyMagician
19:27
stretches make me think it's just soreness
windyMagician
19:27
I'm sober lol
Dkk
19:38
Anyone else get the google notification that your LSD password has been compromised lol. LSD got hacked.
20:48
what.jpg @Dkk
CynicalOops
21:03
You think you just fell out of a coconut tree?
jackfrost11770
21:10
nope dk
CynicalOops
22:37
Calvinamala Harris
jackfrost11770
23:16
should i start using letterboxed again
Dkk
23:25
@jackfrost11770: if you want but like it aint for me
dk do u ever eat at bk
Dkk
23:48
@chickenburgahfart: I would do that in the Army if really desperate for food or if I had to work through lunch. One of the few fast food places I go to.
bk so slept on
Dkk
0:23
I will take In N Out everyday over it when I can though.
texaslawhopefully
1:22
In N Out is not only the best fast food place, but the prices too are fantastic
Dkk
1:27
Indeed, indeed.
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