Negative Pledge Clause
What is a Negative Pledge Clause?
Negative Pledge Clause Example
For example, let's assume that Company XYZ borrows $10 million from Bank A. Bank A requires Company XYZ to pledge all $7 million of its factory assets and some of its securities as loan. The lending agreement includes a negative pledge clause.for the
Later, Company XYZ wants to borrow $2 million from Bank B. Bank B wants Company XYZ to pledge $1 million of factory assets as collateral for the loan. Because Company XYZ has a negative pledge clause in its loan agreement with Bank A, Company XYZ cannot pledge the $1 million of collateral, because doing so would reduce Bank A's security. Company XYZ might choose to pledge other assets to Bank B, ask Bank B for an unsecured loan if it has no other collateral to , or try to renegotiate its collateral agreement with Bank A.
Why Negative Pledge Clauses Matter
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.