negative pledge

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 terms.


negative pledge
An undertaking by a debtor to a lender not to create, or permit to subsist, security or otherwise encumber certain of its assets in certain circumstances without the prior written consent of the lender. It is a covenant usually found in a loan agreement or in the terms of a bond. In a bond, it may simply prohibit the creation of security in certain circumstances unless the same security is created for the bond on a pari passu basis. The purpose of a negative pledge is to ensure that other creditors do not obtain a preferred claim over the assets of the debtor in the event of insolvency.
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Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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