What is a Negative Pledge?
How do creditors know they will get what they're owed when a company defaults? How do they know that other equal creditors won't receive more than them? A negative pledge creates creditor equality at a given level of a company’s capital structure by ensuring that no other creditor is better off than any other in liquidation. In this video James explains the concept of a negative pledge in more detail.
Overview
A negative pledge is a clause in lending documentation to ensure investors and lenders are protected against borrowers from the unequal provision of security over a company’s assets to individuals within the same tranche of a credit hierarchy.
Key learning objectives:
Define negative pledge
Explain the purpose of a negative pledge
Understand who a negative pledge protects
Summary
Expert
Tim Skeet
Banker with more than 35 years experience in the financial markets. Tim has been an ICMA board member and an ECBC steering committee member. Tim is a Freeman of the City of London.
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