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Abstract
The overriding purpose of the negative pledge clause in a loan agreement is to ensure that a borrower's assets will remain unencumbered and available to satisfy the claims of all general unsecured creditors should the borrower get into financial difficulties in the future. The most common formulation of the negative pledge provision permits the borrower to incur future secured indebtedness if the transaction falls within a list of permitted exceptions or if the beneficiary of the existing negative pledge protection is "equally and ratably" secured at the time the new secured indebtedness is incurred. In negotiating a negative pledge clause, the lender's primary objective will be to prevent the borrower from granting priority security interests over its assets or revenues. The borrower's negotiating objective with this clause is to retain as much flexibility as possible in terms of future financing alternatives.