Negative Pledge

Definition

A loan covenant preventing borrowers from pledging assets as collateral to other lenders, protecting unsecured creditors from being subordinated. It's lenders making sure you can't promise the same car to multiple people.

Example Usage

The negative pledge in our bond indenture meant we couldn't secure additional borrowing without violating covenants and triggering cross-default.

Origin

Standard feature of unsecured lending dating to early commercial finance

Fun Fact

Negative pledges are why companies sometimes pay higher rates on later debt even when they have valuable unencumbered assets—their hands are tied by earlier agreements.

Source: Corporate debt and credit agreement structures

Related Terms

Beginner

Leverage

To use something that already exists rather than building something new, which sounds strategic but usually means "we have no budget." The Swiss Army knife of corporate verbs -- it can mean literally anything.

💼 Corporate / Business💰 Finance / Accounting

Advanced

debenture

A fancy IOU from a corporation that's basically backed by nothing more than a firm handshake and the company's stellar reputation. Unlike bonds secured by actual assets, debentures rely solely on the issuer's creditworthiness—think of it as lending money to your successful friend who promises they're good for it, except your friend is a Fortune 500 company. If they go belly-up, you're just another creditor in a very long line.

💰 Finance / Accounting

Beginner

lender

The entity that gives you money now in exchange for you giving them more money later, ideally with interest and your sanity intact. Banks, credit unions, and that one friend who still brings up the $20 from 2015 all qualify.

💰 Finance / Accounting

Intermediate

disburse

The fancy way to say 'fork over the cash,' typically used when governments or large organizations finally release funds they've been sitting on. It's the financial equivalent of a parent grudgingly handing over allowance money. Always sounds more dignified than 'pay out,' which is exactly why accountants love it.

💰 Finance / Accounting

Advanced

subordinated

In finance, debt or claims that get paid last in the hierarchy of bankruptcy proceedings—basically the financial equivalent of standing at the back of the line. Subordinated debt holders only get paid after senior creditors are satisfied, making it riskier but typically offering higher returns. It's the 'you'll get yours if there's anything left' category of obligations.

💰 Finance / Accounting

Advanced

carry trade

Borrowing money in a currency with low interest rates, then investing it in assets with higher returns elsewhere, pocketing the difference. Works brilliantly until exchange rates move against you and your 'free money' becomes very expensive.

💰 Finance / Accounting

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