What was David's situation when God made the Davidic covenant?
At the time, David was King David. He had already committed adultery, Bathsheba had become his wife, and he had sons Solomon and Nathan. God was establishing a royal family line from David through Solomon, Nathan, and eventually to Christ.
Les teaches that 2 Samuel 7 records the Davidic covenant, and it is surrounded by the Abrahamic covenant; every covenant God made with Israel is within the bounds of that Abrahamic covenant. At that time David was King David. He had already committed the sin of adultery, Bathsheba had become his wife, and he now had Solomon and Nathan. God was looking at this royal family that would begin with David, come down to Solomon, then to the two sons of Bathsheba and David, Nathan and Solomon, and the genealogy goes all the way down through history to Joseph and Mary in the New Testament. Once or twice it looked as though the genealogy would be broken—Les calls it the wasp neck—during the Babylonian captivity, when only one man was left in the kingly line who could still have a son. It almost looked like he wouldn't make it, and a little snip would have ended it. But God prevailed, and the genealogy continued until Christ was born.