On 1 July 2019, Medical Supplies Ltd borrowed $15 million to finance an investment in a laboratory for developing and testingsurgicalsupplies. The loan is due 30 June 2029. The lender insisted on a debt covenant in the loan agreement, specifying that the ratio of total liabilities to total tangible assets not exceed 65%. Medical Supplies Ltd complied with the requirement in 2020 when the ratio of total liabilities to total tangible assets was 64%.

Medical Supplies Ltd also invested in plant and equipment used exclusively to manufacture latex gloves. However, due to a decline in demand for latex gloves, analysts are predicting that the company may need to write-down some of its plant and equipment.

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Why would management choose to enter into a lending agreement that contains a covenant that restricts the company's leverage?