Negative pledges often appear in security documents, where they operate to prohibit the person who is granting the security interest from creating any other security interests over the same property, which might compete with (or rank pari passu with) the security of the first secured creditor under the security document in which the negative pledge appears.
In Australia, negative pledge lending took off after a substantial deal by Pioneer Concrete in 1978. It was a new way of lending, which allowed the banks to lend to corporations, something previously the domain of life insurers.
Negative pledge clauses are almost universal in modern unsecured commercial loan documents. The purpose is to ensure that a borrower, having taken out an unsecured loan, cannot subsequently take out another loan with a different lender, securing the subsequent loan on the specified assets. If the borrower could do this, the original lender would be disadvantaged because the subsequent lender would have first call on the assets in an event of default.
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negative pledge — An undertaking given by a borrower to a bank not to create any other secured indebtedness, (whether ranking before or after the bank) without its consent usually as part of the bank s standard documents Easyform Glossary of Law Terms. UK law… … Law dictionary
negative pledge — A document or a provision in a document in which a borrower agrees not to give any creditor a security interest in identified property owned by the borrower. American Banker Glossary An agreement in which the borrower agrees not to pledge any of… … Financial and business terms
negative pledge — noun A type of loan or loan condition in which the borrower agrees with the lender not to allow any other lender or creditor to rank ahead for payment in the event of a liquidation. Such a loan is unsecured (ie. not backed by a charge over… … Wiktionary
negative pledge — promise not to mortgage property … English contemporary dictionary
negative pledge — A covenant in a loan agreement in which a borrower promises that no secured borrowings will be made during the life of the loan or will ensure that the loan is secured equally and ratably with any new borrowings as specifically defined … Accounting dictionary
negative pledge — A covenant in a loan agreement in which a borrower promises that no secured borrowings will be made during the life of the loan or will ensure that the loan is secured equally and ratably with any new borrowings as specifically defined … Big dictionary of business and management
Negative Pledge Clause — A negative covenant in an indenture stating that the corporation will not pledge any of its assets if doing so gives the lenders less security. Also be referred to as a covenant of equal coverage . A negative pledge clause is just another way for … Investment dictionary
Negative pledge clause — A bond covenant that requires the borrower to grant lenders a lien equivalent to any liens that may be granted in the future to any other currently unsecured lenders. The New York Times Financial Glossary … Financial and business terms
negative pledge clause — A bond covenant that requires the borrower to grant lenders a lien equivalent to any liens that may be granted in the future to any other currently unsecured lenders. Bloomberg Financial Dictionary … Financial and business terms
negative pledge clause — Fin a provision in a bond that prohibits the issuer from doing something that would give an advantage to holders of other bonds … The ultimate business dictionary