Jurisdiction(s):
United Kingdom

Key definition

Negative pledge definition

What does Negative pledge mean? A contractual promise in finance documents that a borrower (often including group members) will not create, or allow to subsist, any security interest or encumbrance over its assets without the lender’s or noteholders’ consent. Common in unsecured loan agreements, debentures and bond terms, a negative pledge clause typically includes a list of permitted security and may capture quasi-security (for example, sale and leaseback, receivables financing/factoring, retention of title or similar arrangements). It frequently restricts granting security that would rank ahead of, or pari passu with, the lender, and in bonds may allow secured debt only if...

Negative pledges in debt capital markets under English law: issuer practice, consequences of breach, not a security interest, and drafting/negotiation guidance

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

This Practice Note sets out the concept of a negative pledge and considers:

the negative pledge terms typically encountered in widely used categories of debt securities
the implications of breaching negative pledge provisions
whether a negative pledge constitutes a security interest
key points to address when drafting and negotiating negative pledges

What is a negative pledge?

A negative pledge is a clause that prevents or limits the issuer from granting security interests over its assets for the benefit of all, or certain, other creditors. In the international capital markets, investment grade corporate issuers generally do not adopt absolute bans on creating security interests in their debt securities. Although negative pledges for debt securities by comparable issuers within a given market are largely standardised, notable differences can and do arise, reflecting the specific features of an issuer or the market conditions prevailing when an issue comes to market. In 2006, the International Capital Markets Association (ICMA) released an explanatory memorandum on the meaning of ‘negative pledge’ in the context of bond issues...

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Web page updated on 21/05/2026

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