What is the meaning of negative pledge?
Related Content. 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.
Can you record a negative pledge?
Since the Covenant Negative Pledge does not describe a specific parcel of real property, it does not possess an essential requisite for recording.
What is a double negative pledge?
Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower’s or any Subsidiary’s assets now owned or hereafter acquired, except for Permitted Liens.
What is negative collateral?
The negative pledge is a clause in a loan agreement that states that the debtor does not encumber specific debtor assets, which can be called the “collateral,” until the loan is repaid. In the case of a secured loan, it will allow the creditor to control the debtor’s subsequent borrowings.
Is negative lien a charge?
Lien is the right to retain goods of a borrower for the debt. Negative Lien is used in banking idiom for a borrower to undertake not to make any charge on his property without the sanction of the lender. Under the negative lien, the Banker does not get right to keep any asset of the borrower.
What is positive and negative covenant?
An affirmative covenant, also referred to as a positive covenant, is a promise that requires a party to adhere to specific terms of the agreement. It is the opposite of a negative covenant, which requires a party to avoid doing something.
Is negative pledge unsecured?
When a financial institution provides an unsecured loan to an individual or entity, it may include a negative pledge clause in the contract in order to protect itself. In this case, the clause prevents the borrower from using its own assets to secure other sources of financing.
What is a negative pledge in a legal charge?
A negative pledge is a contractual undertaking which prohibits or restricts the promisor from creating encumbrances over its assets. In lending transactions, a negative pledge is commonly given by the borrower to the lender and it is often one of the most important negative undertakings in a facility agreement.
What is a negative pledge on intellectual property?
Negative pledge is a provision in a contract which prohibits a party to the contract from creating any security interests over certain property specified in the provision.
Is a negative pledge unsecured?
Negative pledge clauses are almost universal in modern unsecured commercial loan documents. The purpose is to ensure that a borrower, having taken out an unsecured loan, cannot subsequently take out another loan with a different lender, securing the subsequent loan on the specified assets.
Is negative pledge a floating charge?
The negative pledge clause is now a common feature of any instrument creating a floating charge. It is an attempt by the charge holder to limit the chargee’s ability to grant security to a third party which ranks in priority to the rights of the floating charge holder.
What is negative lien with an example?
A negative lien, on the other hand, is a right of a person to restrict another person from disposing of or creating encumbrance over a property belonging to the latter which is in the latter’s possession or control till the time the debt or other obligation (for which such negative lien is conferred) is discharged.