Negative pledges


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert
Practice notes
In-house

Negative pledges


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert

Practice notes
In-house
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This Practice Note examines:

  1. •

    why negative pledge clauses are used in commercial transactions

  2. •

    the consequences of breaching negative pledge provisions

  3. •

    how negative pledges are viewed in the context of security and quasi-security, and

  4. •

    key considerations when drafting a negative pledge clause

Where appropriate, this Practice Note highlights relevant provisions in Precedent: Facility agreement (term loan): single company borrower—bilateral—with or without security or a guarantee and the Loan Market Association (LMA) investment grade multicurrency term facility agreement (the LMA facility agreement) (available to LMA members on the LMA website).

What is a negative pledge?

A negative pledge is a contractual undertaking, often contained in a facility agreement, which prohibits or restricts the promisor from creating encumbrances over its assets in favour of a third party. Negative pledges can prohibit the borrower entering into certain other arrangements that fall short of granting a full security interest but have a similar effect (for further information, see Practice Note: Granting security—key issues for borrowers). In Lending transactions, a negative pledge is commonly given by the borrower

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United Kingdom
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Key definition:
Lending definition
What does Lending mean?

The lending of copies of the work available for use, on terms that it will or may be returned.

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