Debt covenants benefit creditors because the covenants reduce default risk.

Debt covenants are conditions included in loan agreements that the borrower must meet in order to avoid default. These conditions can include restrictions on the borrower's financial performance, use of funds, and other activities. By imposing these covenants, creditors can reduce the risk of default by ensuring that the borrower maintains a certain level of financial health and operates within certain parameters. This ultimately benefits the creditors by increasing the likelihood that they will be repaid on time and in full.