negative pledge clause
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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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
negative pledge clause
A restriction in a borrowing agreement that limits a borrower's ability to issue new debt having a priority claim on the firm's assets. A negative pledge clause, a part of some debenture agreements, protects the creditors against a dilution of security.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.