Pari Passu
Short definition
Pari passu means claims sit in the same rank and sharing order. New debt stuffed into that rank dilutes existing senior recovery.
Detailed explanation
Negative pledge and equal-sharing clauses cut silent loss of rank. Secured versus unsecured pari passu are not the same.
Restructuring and new-money exceptions can break the order. The SPA and the credit agreement write which debts count as pari passu.
Why it matters for the CFO
A new “same rank” loan splits the old collateral pool. Headroom and LGD quietly worsen.
How to read it
Pari passu is the same legal rank, not the same collateral or the same covenant.
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Definitions are educational. They are not investment, credit or tax advice.