Quick Answer: What Is A Negative Pledge?

What is a negative pledge in a debenture?

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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..

What is the purpose of pledge?

A pledge is basically very serious formal promise. You can pledge allegiance to your country, you can pledge to keep a secret, and you can pledge a sum of money to a cause. Pledge can be used as both a noun and a verb. As a noun, it can be a solemn promise you’ve made.

What does negative lien mean?

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.

What’s a floating charge?

A floating charge is a security interest or lien over a group of non-constant assets, that change in quantity and value. A floating charge is used as a means to secure a loan for a company. The assets used in a floating charge are usually short-term current assets that the company consumes within one year.

What is a negative pledge charge?

A negative pledge clause is a type of negative covenant that prevents a borrower from pledging any assets if doing so would jeopardize the lender’s security. This type of clause may be part of bond indentures and traditional loan structures.

What pledge means?

noun. a solemn promise or agreement to do or refrain from doing something: a pledge of aid; a pledge not to wage war. something delivered as security for the payment of a debt or fulfillment of a promise, and subject to forfeiture on failure to pay or fulfill the promise.

What is positive and negative covenant?

A negative covenant contrasts with a positive covenant, which is a clause in a loan agreement that requires the firm to take certain actions. … While positive or affirmative covenants do not limit the operations of a business, negative covenants materially limit a business’ operations.

What is pledge example?

The definition of a pledge is something held as security on a contract, a promise, or a person who is in a trial period before joining an organization. An example of a pledge is a cash down payment on a car. An example of a pledge is a promise that you’ll buy a person’s car.

What does it mean to pledge yourself?

When someone makes a pledge, they make a serious promise that they will do something. … If you pledge yourself to something, you commit yourself to following a particular course of action or to supporting a particular person, group, or idea.

What is a cross default clause?

Cross default is a provision in a bond indenture or loan agreement that puts a borrower in default if the borrower defaults on another obligation. For instance, a cross-default clause in a loan agreement may say that a person automatically defaults on his car loan if he defaults on his mortgage.

What is an affirmative covenant?

An affirmative covenant is a type of promise or contract that requires a party adhere to certain terms. For example, an affirmative bond covenant could provide that an issuer maintain adequate levels of insurance or deliver audited financial statements.

What is a double negative pledge?

A Double Negative Pledge is an agreement whereby a borrower agrees to both abstain from granting liens on assets to any other existing or prospective lender (negative pledge), and abstain from offering any current or prospective lender an agreement not to pledge (double negative pledge).

What is negative pledge Malaysia?

Generally, negative pledges are negative covenants which often appear in security documents for unsecured loans, where they operate to prohibit the company to pledge any or some of its assets to other creditors or lenders. This is a common practice amongst Malaysian banks engaged in the area of corporate lending.

Is a negative pledge a security interest?

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. … Negative pledge clauses are almost universal in modern unsecured commercial loan documents.

What is a pledge in banking?

A pledge is a bailment that conveys possessory title to property owned by a debtor (the pledgor) to a creditor (the pledgee) to secure repayment for some debt or obligation and to the mutual benefit of both parties. … The pledge is a type of security interest.