Negative Pledge

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Negative Pledge

An agreement in which the borrower agrees not to pledge any of its assets as security and/or not to incur further indebtedness.

Negative Pledge

A negative covenant in a bond indenture in which the issuer agrees not to use any of its assets as security for another debt obligation or other liability if doing so would adversely impact the riskiness of the bond. This protects bondholders and also allows the issuer to pay a lower coupon rate.
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Other negative pledges include restrictions to pay dividends and asset disposals.
They also affect the chain's ability to engage in mergers, consolidations, asset dispositions, sale-leaseback transactions and affiliate transactions; change its business; amend certain debt and other material agreements; issue and sell capital stock of subsidiaries; restrict distributions from subsidiaries; and grant negative pledges to other creditors.
To ensure its continued success, TAP is contemplating the release of mortgages and/or negative pledges over four of its A340 aircraft.