Illinois Negative Pledge Agreement

What Is a Negative Pledge Clause? 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.

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.

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).

A pledged asset is a valuable possession that is transferred to a lender to secure a debt or loan. A pledged asset is collateral held by a lender in return for lending funds. Pledged assets can reduce the down payment that is typically required for a loan as well as reduces the interest rate charged.

Positive Covenants and Negative (Restrictive) Covenants A covenant can be either positive or negative. A negative obligation is often referred to as a restrictive covenant. Positive covenants are obligations to do something, such as keep contribute to a maintenance fund or maintain a wall.

A negative covenant is a bond covenant preventing certain activities unless agreed to by the bondholders. Negative covenants are written directly into the trust indenture creating the bond issue, are legally binding on the issuer, and exist to protect the best interests of the bondholders.

While a Negative Pledge is not a security instrument, it can be useful in the right context so long as a Lender recognizes its limitations. The advantages of a Negative Pledge include its flexibility and the ease with which it can be incorporated into any finance agreement.

Lenders will sometimes require a negative pledge from a borrower or related party as a condition of a loan. Despite the title, a negative pledge is not a pledge of collateral and does not grant any kind of a security interest in assets.

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.