Debt Limitation

A clause in a bond covenant that limits the amount of overall debt the organization issuing the bond can take on.

See: Debt/EBITDA.

Cash flow. That's what a company needs in order to pay its interest on the debt it has incurred. Cash. Green stuff. Bank. A given company has $30 million in earnings and $35 million in cash profits. They're depreciating that factory they bought 4 years ago for another 11 years. They have $500 million in debt, which carries 5% interest, or $25 million just to pay the interest on that debt. They then have to add another $15 million a year to pay down principal. They are at their absolute max limit for the debt they can take on. One tiny hiccup and the company is bankrupt.