A credit agreement negative pledge is a clause in a loan agreement stating that the borrower cannot pledge any of their assets as collateral for another loan or credit facility without the lender`s permission. This prevents the borrower from taking on additional debt that would jeopardize the lender`s ability to recover their investment in case of borrower default.

The negative pledge clause is a common provision in loan agreements, particularly in those involving high-value transactions or for borrowers with significant assets. The clause is typically included as a safeguard for the lender, ensuring that their investment remains secure and protected.

For borrowers, the negative pledge clause means that they may need to seek the lender`s permission before pledging any of their assets as collateral for another loan or credit facility. This can limit their ability to obtain additional financing, but it also ensures that they remain focused on repaying their existing debt and protecting their assets.

In some cases, borrowers may seek to negotiate the negative pledge clause to allow for certain exceptions. For example, they may request permission to pledge certain assets as collateral for a short-term loan or to secure a revolving line of credit. However, these exceptions are typically granted on a case-by-case basis and are subject to the lender`s approval.

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