What is Asset Coverage?

Legal Definition
The ability for a company to use its ASSETS to cover a particular financial CLAIM or LIABILITY, such as a class of DEBT or PREFERRED STOCK. Asset coverage can be computed via: where TA equals total assets (expressed in terms of BOOK VALUE or LIQUIDATING VALUE), IN is INTANGIBLES, Cl is the claim being covered, ClSR is any claim ranking senior to Cl. The greater the asset coverage, the stronger the financial position and flexibility of the company. ASSETFUNDING LIQUIDITY RISK The RISK of loss arising from an inability to obtain unsecured funding at a reasonable economic cost, causing a forced pledge or sale of ASSETS at a loss. A subcategory of LIQUIDITY RISK. See also ASSET LIQUIDITY RISK, ENDOGENOUS LIQUIDITY RISK, EXOGENOUS LIQUIDITYRISK, FUNDING LIQUIDITY RISK.