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negative pledge clause |
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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". Notes: A negative pledge clause is just another way for bondholders to protect their investment. By including a negative pledge clause in a bond indenture, the bondholders of the current bond issue prevent the company from issuing any debt in the future which would jeopardize their current priority claim on the company's assets.Including a negative pledge cause in a bond indenture increases the safety of the bond issue from the investors' perspective, and therefore often allows the bond issuer to borrow funds at a slightly lower interest rate. 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.
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