What to Do About Pari Passu

Butterworths Journal of International Banking and Financial Law, September 2014

3 Pages Posted: 8 Nov 2015

See all articles by Lee C. Buchheit

Lee C. Buchheit

Center for Contract and Economic Organization

Sofia Martos

Cleary Gottlieb Steen & Hamilton LLP

Date Written: September 1, 2014

Abstract

The pari passu clause was designed as a contractual promise to maintain the legal ranking of an instrument at a level equal (not subordinate) to the borrower’s other senior indebtedness in other debt instruments. It was never the intention of pari passu covenants, which in their current form began appearing in syndicated commercial bank loans in the 1970s, to compel borrowers to pay all of their obligations on a ratable basis. If future judicial interpretations of the NML decision conclude that it stands for the proposition that equally ranking debt must be paid ratably, it is likely that pari passu clauses will begin to infiltrate purely domestic debt instruments (where they do not now generally appear).

Suggested Citation

Buchheit, Lee C. and Martos, Sofia, What to Do About Pari Passu (September 1, 2014). Butterworths Journal of International Banking and Financial Law, September 2014, Available at SSRN: https://ssrn.com/abstract=2686681

Lee C. Buchheit (Contact Author)

Center for Contract and Economic Organization ( email )

New York, NY

Sofia Martos

Cleary Gottlieb Steen & Hamilton LLP ( email )

One Liberty Plaza
New York, NY 10006
United States

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