The Negative Pledge Agreement is a fundamental document in Canadian commercial lending practices, typically used alongside primary financing agreements such as loan facilities or bond issuances. It serves as a protective mechanism for lenders by preventing borrowers from granting security interests over their assets to other creditors, thereby maintaining the lender's position regarding the borrower's asset base. The agreement must comply with Canadian federal and provincial legislation, including the Personal Property Security Act (PPSA) and relevant corporate laws. It is particularly crucial in unsecured lending arrangements where lenders rely on the borrower's covenant rather than direct security. The document typically includes detailed provisions on permitted exceptions, monitoring requirements, and enforcement mechanisms, tailored to the specific transaction and industry context.
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1. Parties: Identifies the borrower making the negative pledge and the beneficiary (typically a lender)
2. Background: Recitals explaining the context of the agreement, typically referencing the related loan or credit facility
3. Definitions: Defines key terms including 'Security Interest', 'Permitted Security', 'Assets', and other relevant terms
4. Negative Pledge Covenant: Core provision where the borrower agrees not to create or permit to subsist any security interest over its assets
5. Permitted Security: Lists exceptions to the negative pledge covenant, detailing allowed security interests
6. Duration and Termination: Specifies how long the negative pledge remains in effect and conditions for termination
7. Representations and Warranties: Borrower's confirmations regarding existing security interests and capacity to enter agreement
8. Further Assurances: Borrower's commitment to execute additional documents or take actions to give effect to the agreement
9. Events of Default: Circumstances constituting breach and consequences thereof
10. Notices: Communication procedures between parties
11. Governing Law and Jurisdiction: Specifies applicable law and courts having jurisdiction
12. Boilerplate Provisions: Standard clauses including severability, amendments, assignment, and entire agreement
1. Security Trustee Provisions: Required when the agreement involves multiple creditors with a security trustee structure
2. Intercreditor Provisions: Needed when coordinating with other creditors' rights and priorities
3. Reporting Requirements: Optional provisions requiring periodic confirmation of compliance
4. Special Asset Provisions: Specific provisions for particular types of assets (e.g., intellectual property, real estate)
5. Change of Control: Provisions dealing with changes in borrower ownership or control
6. Currency Provisions: Required for cross-border transactions involving multiple currencies
1. Schedule of Assets: Comprehensive list of assets covered by the negative pledge
2. Schedule of Existing Security: Details of any existing security interests that are carved out from the agreement
3. Schedule of Permitted Security: Detailed list of specific security interests that are permitted exceptions
4. Schedule of Group Companies: List of affiliated entities covered by the agreement if applicable
5. Form of Compliance Certificate: Template for periodic confirmation of compliance with the negative pledge
Relevant legal definitions
Clauses
Relevant Industries
Banking and Financial Services
Corporate Lending
Investment Banking
Private Equity
Real Estate
Infrastructure
Manufacturing
Technology
Energy and Resources
Healthcare
Retail
Telecommunications
Relevant Teams
Legal
Finance
Treasury
Corporate Banking
Risk Management
Compliance
Credit Analysis
Corporate Secretariat
Investment
Deal Advisory
Relevant Roles
Chief Financial Officer
Treasury Manager
Corporate Finance Director
Legal Counsel
Finance Manager
Credit Risk Manager
Relationship Manager
Loan Officer
Corporate Banking Manager
Compliance Officer
General Counsel
Financial Controller
Investment Director
Senior Finance Associate
Corporate Secretary
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