Definition
Pari passu is a Latin phrase that literally means “with an equal step” or “on equal footing”. It is sometimes translated as “ranking equally”, “hand-in-hand”, “with equal force”, or “moving together”, and by extension, “fairly”, “without partiality”.
What is ‘Pari-passu’
It is a Latin word that literally translates as “on equal footing,” and it characterizes circumstances when two or more assets, securities, creditors, or debts are handled on an equal footing without any indication of favor. In bankruptcy procedures, when a decision is made, all creditors may be treated equally and will be reimbursed at the same time and in the same fractional amount as all other creditors. This is an example of pari passu.
Explaining ‘Pari-passu’
If you’re in the financial world, you’ve probably heard the phrase “pari-passu,” which refers to loans, bonds, or classes of shares that have equal rights to payment or equal seniority. Furthermore, secondary offerings of shares with identical rights to existing shares are treated as pari passu with the existing shares. Wills and trusts may specify an in pari passu distribution, which means that all of the assets will be distributed equally amongst the stated beneficiaries of the will or trust.
Pari-passu in Finance
Pari-passu is a term that may be used to characterize specific provisions included inside a number of financial instruments, such as loans and bonds, among others. Often, these conditions are in place to guarantee that the financial product linked with them performs on an equivalent level with all other financial products of a similar sort. While it comes to debt, they are the most often seen when dealing with unsecured commitments, which is the case in the majority of cases.
Secured and Unsecured Debts
Because secured loans are guaranteed by a specific asset, they are often not totally equivalent to the other obligations that the borrower owes to third parties. Because unsecured debts are not secured by a particular asset, the requirement to ensure that they are treated on an equal footing with other commitments may be higher in the event of borrower failure or bankruptcy. A lender that provides unsecured finance may also include restrictions that prohibit a borrower from engaging in specific actions, such as offering assets in exchange for another loan, in order to maintain a position in terms of payback.
Pari Passu FAQ
What is pari passu in finance?
It is latin meaning 'equal footing,' and it refers to a financing arrangement in which numerous lenders each have an equal claim to the assets used as collateral for a loan. If the borrower is unable to meet his or her payment obligations, the assets may be liquidated, with each lender receiving an equal portion of the earnings at the same time as the other lenders.
How does pari passu work?
It is latin meaning 'equal footing,' and it refers to a financing arrangement in which numerous lenders each have an equal claim to the assets used as collateral for a loan. If the borrower is unable to meet his or her payment obligations, the assets may be liquidated, with each lender receiving an equal portion of the earnings at the same time as the other lenders.
What is the difference between pro rata and pari passu?
It is understood that pro-rata refers to the equitable distribution of profits and obligations, and pari-passu refers to the rank and seniority of the obligations, which alludes to the fact that they are 'on an equal footing.'
What is pari passu loan?
Pari-passu finance (Latin for 'equal footing') is a kind of financing in which numerous lenders each have an equal claim to the assets that served as collateral for the loan. If the borrower is unable to meet his or her payment obligations, the assets may be liquidated, with each lender receiving an equal portion of the earnings at the same time as the other lenders.
What is pari passu in real estate?
This term is often used in real estate to refer to the pro-rata distribution of profits depending on each investor's original equity investment proportion, which is a prevalent feature of waterfall distribution models.
What is a first pari passu charge?
A Latin term that translates as 'on equal footing,' pari passu charge is defined as 'on equal footing.' A 'Pari Passu' charge indicates that if a borrower business goes into liquidation, the assets over which the charge has been made will be allocated in proportion to the relative shares of the creditors (lenders) in the borrower firm.
Further Reading
- Finance, funding, saving, and investment – www.tandfonline.com [PDF]
- Rogue trends in sovereign debt: Argentina, vulture funds, and pari passu under New York law – heinonline.org [PDF]
- Pari Passu and a Distressed Sovereign’s Rational Choices – heinonline.org [PDF]
- The pari passu interpretation in the Elliott case: a brilliant strategy but an awful (mid-long term) outcome – heinonline.org [PDF]
- Sovereign bond contract reform: Implementing the new ICMA pari passu and collective action clauses – www.cigionline.org [PDF]
- Argentina’s post-2001 economy and the 2014 default – www.sciencedirect.com [PDF]
- Understanding the pari passu clause in sovereign debt instruments: a complex quest – www.jstor.org [PDF]
- The pari passu clause in sovereign debt instruments – heinonline.org [PDF]
- Courts and sovereigns in the – academic.oup.com [PDF]
- Restructuring a sovereign bond pari passu work-around: can holdout creditors ever have equal treatment – heinonline.org [PDF]
