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Open End Covenant Meaning & Definition

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Definition of Open End Covenant

Open End Covenant is a type of bond indenture that allows for the issuance of additional bonds with the same claim on the collateral as the original issue.

Applying "Open End Covenant" to Securities Exams:

Open End Covenant allows the issuer of debt to offer more bonds with the same claim on the collateral as the original bonds. The new bonds will be subject to an additional bond test to ensure that the new bonds’ debt service can be supported. If the original bond issue did not have an open end covenant any new bonds issued would have to be subordinate to the original issue.

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