Module 2 · Chapter 5

Negative Pledge and Events of Default

A bond has no quarterly tests. Two terms protect holders instead: no secured bonds ranking ahead of them, and the right to call their money back early after a serious failure.

≈ 9 min read 8-question test

In this chapter

  • Why the negative pledge exists, and which debts and companies it catches
  • Why the Notes carry no financial tests, unlike a bank loan
  • What counts as an event of default, and how a holder acts on one

5.1The two protections in one paragraph

The Notes are unsecured and run for 7 years, and holders cannot watch Valkenrade’s business from day to day. Two terms protect them. Condition 3, the negative pledge, stops Valkenrade giving security for other bonds unless holders share it. Condition 9 lists the events of default: the failures that let a holder demand its money back early.

Key point

The Notes have no financial tests. Holders rely on two things: no secured bonds ahead of them, and the right to demand early repayment after a serious failure.

Also in this chapter

  1. Why holders need a negative pledge
  2. Only bonds and similar securities are caught
  3. Which group companies the promise binds
  4. Why the Notes have no financial tests
  5. The events of default
  6. Each holder acts alone
  7. Your job

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