Finance, a mechanism used in loan agreements to determine which subsidiaries of the borrower will be required to comply with the covenants, guaranty the loan and pledge collateral, and otherwise be subject to the terms of the loan documents. Subsidiaries that are not restricted (called unrestricted subsidiaries) are not considered to be necessary to support repayment of the loan and are not subject to the terms of the loan documents. In exchange, their income and results of operations are not counted in the calculation of the loan agreement financial covenants. Since unrestricted subsidiaries are "outside" of the credit group, the loan agreement covenants will limit the amount of assets and money that can be distributed to them by the borrower and its restricted subsidiaries (for example, in the form of loans, dividends, asset transfers, and capital contributions). Lenders may agree to this mechanism as an accommodation to credit-worthy borrowers.

Securities and capital markets, a mechanism used in indentures to determine which subsidiaries of the issuer will be required to comply with the covenants, guarantee the debt securities, and otherwise be subject to the terms of the indenture. Subsidiaries that are not restricted (called unrestricted subsidiaries) are not considered to be necessary to support repayment of the debt securities and are not subject to the terms of the indenture. In exchange, their income and results of operations are not counted in the calculation of the indenture financial covenants. Since unrestricted subsidiaries are "outside" of the system, the indenture covenants will limit the amount of assets and money that can be distributed to them by the issuer and its restricted subsidiaries (for example, in the form of loans, dividends, assets transfers, and capital contributions). Investors may agree to this mechanism as an accommodation to creditworthy issuers.