Definition
A negative pledge clause in bond agreements prevents the issuer from using assets as collateral for other debt without equally securing existing bondholders. This protects unsecured bondholders from becoming subordinate to new secured creditors. Violation can trigger default provisions.
Example
A company's bonds contain a negative pledge. Taking a secured bank loan would violate it unless existing bondholders receive equal security.
FAQ
What is Negative Pledge?
A covenant prohibiting the issuer from pledging assets to other creditors.
Why is Negative Pledge important?
Negative Pledge helps investors evaluate fixed income and make more informed decisions.