Q: What is breach of covenant ?

Ans: Breach of covenants: 

Where a counterparty has agreed to do something under the contract (which may not be directly related to the commercial transaction being undertaken) and it is not done, it will result in a breach of covenant. For instance, if a borrowing entity covenants that it will inform the bank in the event of any natural damage to the property secured and it does not do so, it will be a breach of a covenant, even if it does not directly relate to the repayment of the loan or payment of interest which is at the core of the transaction. The ability of the Bank to invoke the security will go down if there is any damage to it. Therefore a breach in a covenant can also result in a financial loss.