Pari passu

The pari passu clause (Latin pari passu = " in the same step "; equal rank explanation ) is an agreement in international loan terms or in credit agreements, aiming at the same rank of present and future unsecured claims against a debtor. It belongs to the non- financial covenants.

General

Unsecured creditors are interested in that they are equally treated and operated by the debtor. This interest derives from the principle par conditio creditorum, which calls for the equal treatment of creditors. However, if a creditor collateral provided, it has privileges in the event of the insolvency of his debtor. During the privileged in this way, creditors may realize the collateral in the context of segregation in the insolvency of his debtor, and therefore its outstanding debts can be completely or partially cover, the unsecured creditors is dependent on the rate of insolvencies, which usually allows no or very low income. Therefore, the unsecured creditors anxious that all present and future unsecured obligations of the joint debtor have mutually equal rank. To this end, the pari-passu clause is to ensure that the claims of creditors rank pari passu with other present or future unsecured obligations of the debtor. At Pari -passu clause is a legal obligation of the borrower to blame with which this assures a legal condition to ensure no other unsecured liabilities with priority over the affected debt by the debtor during the term of the liabilities.

The pari passu clause is one of the standard clauses of all ( international ) syndicated loans on the basis of the developed by the LMA agreement template.

Content

If a debtor from various creditors now loan without provision of securities, each creditor must ensure in its loan agreements that between unsecured creditors rank no relationship arises which could be understood as a clearance order the debtor. Therefore, the clause seeks to clarify that a certain unsecured exposure to the same rank ( "rank at least" ) should have all been incurred and all future still to be incurred, unsecured claims of other creditors.

In particular, the clause aims that the requirements of the lender in case of insolvency pari passu with all other existing and future ones, unsecured claims of other creditors. This assumes that such a contractual rank determination in the relevant jurisdiction does not apply to insolvency legal obstacles. In this context, Wilfried Stadler can not be accepted, if it considers the pari passu clauses of borrowers with legal seat in Germany or Austria "basically " superfluous. It assumes that the ranking of claims, at least in these two countries had legal provisions mandatory. Preferential creditors (such as employees, tax authorities, social and public duties) that had to satisfy in priority over all other creditors, there is no longer since the entry into force in January 1999 Insolvency in Germany. Therefore, an equal rank explanation quite unfolds insolvency law in effect at the creditor circle. Remains in the bankruptcy creditor for this circle yet distributable insolvency left, he is a pro rata and pari passu to satisfy due to the pari-passu clause.

Scope

The granting of a certain rank mainly serves to define the legal position of creditors against third creditors in satisfaction of their liabilities in the bankruptcy proceedings of the debtor from the outset. However, the pari passu clause shall not take effect until the insolvency of the debtor. Rather, it should aim that the debtor beneficiary of the clause creditors pari passu also served in principal and interest payments, so no creditor - such as liquidity constraints - are preferred. Therefore, by the clause, all unsecured claims, regardless of which creditors they originate and what duration they have captured. The debtor undertakes not to take any other liability with priority over the debt beneficiary of the clause.

"The scope of application of the pari passu clauses can ... but be limited by the promised equality only applies to certain types of liabilities of the issuer, such as unsecured and unsubordinated foreign currency liabilities." If certain liabilities classified as subordinated, creates a priority for the obligations of the beneficiary with pari-passu clause. The systematization of bonds or liabilities generally is to distinguish whether they are subject to a certain ranking. It differentiates between senior debt and liabilities with the same rank in accordance with the pari-passu clause and subordinated liabilities. These three categories have a direct effect on the clearance order. First, the priority, then the peer and then only serves the subordinated debt.

The clause can also produce only DC rank with the debt that are not priviliegiert by law in insolvency, so that the clause does not alter the statutory ranking in insolvency proceedings. The clause can not put the statutory privilege of certain claims in the insolvency repealed accordingly, if there is such legal rankings.

Government bonds with pari-passu clauses

Ever since the moratorium of the Republic of Argentina in December 2001 for certain, provided with pari-passu clause bonds a discussion of this clause, at least in terms of their significance for government bonds has emerged.

Was also in government bonds and it is still customary to represent the unsecured bondholders passu with a pari-passu clause. In § 8 paragraph 1 sentence 1 of the terms and conditions of bonds of the Republic of Argentina liabilities were referred generally it without any restriction to certain species of that it constitutes " unsubordinated obligations " of the Republic. By § 8 paragraph 1 sentence 2 of the bond conditions were assured adds that the borrowings are always with other unsecured and unsubordinated external liabilities within the meaning of § 8 paragraph 4 of the bond terms in the same rank. While the beneficiary of the clause bondholders any interest payments received on the scheduled maturity date, the IMF has operated by Argentina on, even though he is not formally belonged to the senior creditors. Therefore lawsuits from bondholders for violating the Terms and Conditions are pending.

However, loans from the World Bank, the IMF and other supranational organizations are consistently operated generally by the debtor countries. The reasons are especially of concern in the debtor countries, that a violation of the credit obligation to the World Bank or the IMF could lead to a particularly profound damage to the international credit rating by itself and far-reaching sanctions would result. In addition, it is hoped by the multilateral financial institutions more loans, which can be promoted by a credit operation. For some literary voices, it is not disputed that the multilateral lenders plays a preferential creditor status. The Federal Ministry for Economic Cooperation and Development confirmed this interpretation of the law, according to which the demands of the international organizations " as well as, the amount to already burdened with extended repayment periods on loans and short term loans that are not treated in the Paris Club. They are senior debt ... ". As for States as debtors insolvency proceedings does not exist ( bankruptcy ), it is still unclear whether the pari passu clause can ever be applied and enforced in government bonds.

Event for a pari-passu clause

Does the debtor after delivering a pari passu clause, a creditor to provide other collateral available or whose claim to give priority to, this is a violation of the previously discharged pari passu clause. The same rank with later creditors is in fact broken if they receive a security that would privilege them in bankruptcy or if they would be given a priority with implications for the interest rate and repayment sequence. In these instances, pari passu clauses and warranties of the borrower, the beneficiary of the clause with creditors to offer equivalent safeguards so as not to impair their rank. Here, the transition to negative declaration to prevent an unsecured creditor discriminatory collateral begins.