What does pari passu mean in a contract?
Key Takeaways. Pari-passu is a Latin phrase meaning “equal footing.” In finance, “equal footing” means that two or more parties to a financial contract or claim are all treated the same.
What is the difference between pro rata and pari passu?
A pro rata share simply means that each shareholder gets an equal proportion for every share of an investment that they own. In contrast, pari passu means that all obligations are of the same class and priority.
What is pari passu private equity?
In a private equity deal, pari passu describes when a right or obligation associated with a class of stock or investors (for example, the right to receive dividends or the obligation to make capital contributions) applies equally to more than one category of shareholders.
What role does pari passu clause play in a sovereign debt restructuring?
Using the pari passu clause as a means to enjoin payment to restructured bondholders leaves sovereign debtors with little recourse but to cede to the demands of holdout creditors and can have a devastating long-term impact on the sovereign’s capacity to rebuild debt sustainability.
Is pari passu good?
Pari passu is a Latin term that means ‘on equal footing’ or ‘ranking equally’. It is an important clause for creditors of a company in financial difficulty which might become insolvent. If the company’s debts are pari passu, they are all ranked equally, so the company pays each creditor the same amount in insolvency.
Is negative pledge a security?
A negative pledge clause prohibits the debtor in the contract from creating a security interest on an encumbered asset. It is extremely common in financing transactions. The clause is utilized to protect the interests of unsecured lenders that can be negatively impacted by a company’s borrowing.
Does pro rata mean?
What does pro rata mean? Pro rata is a Latin term that translates to “proportional” or “in proportion”. In general terms, it is used to describe a process where whatever is being allocated will be distributed in equal portions depending on an individual’s share of the overall object.
What is prorata basis?
If something is given out to people on a pro rata basis, it means assigning an amount to one person according to their share of the whole. While a pro rata calculation can be used to determine the appropriate portions of any given whole, it is often used in business finance.
What is 1x liquidation preference?
A 1x liquidation preference means the investors get back the invested capital before the founders get their share. With a multiple liquidation preference (2x, 3x etc.), the investors get a multiple of their investment before the founders get paid.
What is per share liquidation preference?
The liquidation preference determines who gets paid first and how much they get paid when a company must be liquidated, such as the sale of the company. Investors or preferred shareholders are usually paid back first, ahead of holders of common stock and debt.
What is pari passu first charge?
“Pari Passu” charge means that when borrower company goes into dissolution, the assets over which the charge has been created will be distributed in proportion to the creditors’ (lenders) respective holdings.
How is pari passu charge created?
This type of charge created through common documents on behalf of multiple banks is called Pari-Passu charge. Law requires such charges on assets of the company to be registered at ROC within 30 days from the date of creation of charge or such extended time permitted by the ROC.