Pari Passu Là Gì

Ebony Howard is a certified public accountant và credentialed tax expert. She has been in the accounting, audit, và tax profession for more than 13 years.

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What Is Pari-Passu?

Pari-passu is a Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors, or obligations are equally managed without preference. An example of pari-passu occurs during bankruptcy proceedings: When the court reaches averdict,the court regards all creditors equally, và the trustee will repay them the same fractional amount as other creditors & at the same time.


Pari-passu maydescribe certain clauses within a variety of financial vehicles, such as loans & bonds, which are debt instruments issued by companies khổng lồ raise cash. Often, these clauses are in place lớn ensure the associated financial product is functioning as an equal lớn all similar others.


Pari-passu is a Latin phrase meaning "equal footing."In finance, "equal footing" means that two or more parties to lớn a financial contract or claim are all treated the same.Pari-passu is comtháng in bankruptcy proceedings as well as debts such as parity bonds in which each tiệc ngọt gets the same amount. Wills and trusts can also assign an in pari-passu distribution where all the named parties mô tả the assets equally.

How Pari-Passu Works

In finance, the term pari-passu can refer to lớn loans, bonds, or classes of shares that have sầu equal rights of payment or equal seniority. Pari-passu can describe any instance where two or more items can claim equal rights asthe other.


Equity Shares

Within the marketplace, all new equity shares (called a secondary offering) have sầu equal rights with existing shares or those that were previously issued. In that sense, the shares are pari-passu. Pari-passu can apply to lớn common stoông chồng shares, for example, so that each shareholder has equal rights to lớn claims for dividends, voting rights, và the liquidation of assets.


Creditors

However, pari-passu does not apply lớn creditors such as banks. If a company has debt or loans outstanding, there"s a pecking order in which certain creditors are repaid first in the event of bankruptcy và liquidation of the company"s assets. As a result, pari-passu would not apply to creditors & shareholders since the creditors would be paid before the shareholders.

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Wills and Trusts

Wills & trusts can assign an in pari-passu distribution where all the named parties giới thiệu the assets equally. In other words, each of the named beneficiaries would get the same amount.


Similar Products

Often, identical items will be pari-passu, coming with the same benefits và costs of the other items with which they are grouped. In other situations, items may only be pari-passu in one or only certain aspects. For example, two competitors may offer two functionally identical widgets for the same price with superficial differences such as color. These widgets are functionally pari-passu but may be aesthetically different.


Pari-Passu and Unsecured Debts

Since an asset backs secured debts, they are often not fully equal to the other obligations held by the borrower. Since there is no asset supporting unsecured debts, there are greaterinstances ofborrower mặc định or bankruptcy. Further, a provider of unsecured financing may enact clauses that prevent a borrower from taking part in certain activities, such as the promising of assets for another debtkhổng lồ keep a position with regard to repayment.


A parity bond refers to lớn two or more bond issues with equal rights of payment or equal seniority khổng lồ one another. In other words, a parity bond is an issued bond with equal rights to lớn a claim as other bonds already issued. For example, unsecured bonds have sầu equal rights in that coupons may be claimed without any particular bond having priority over another. Therefore, unsecured bonds would be referred lớn as parity bonds with each other.Similarly, secured bonds are parity bonds with othersecured bonds.


Example of Pari-Passu

Parity bonds have sầu equal rights to lớn the coupon ornominal yield. In fixed-income investments, the coupon is the annual interest rate paid on a bond. Consider a $1,000 bond with a 7% coupon rate. The bond will pay $70 per year. If new bonds with a 5% coupon are issued as parity bonds, the new bonds will pay $50 per year, but bondholders will have sầu equal rights to lớn the coupon.


A parity bond stands in contrast khổng lồ ajuniorlien or a senior lien bond. A junior lien bond, also called asubordinatebond, has a subordinate clayên to lớn pledged revenue as compared lớn a senior lien bond, which is also called a first lien bond. Unsecured debts are subordinate bonds compared to secured debts.