What is pari passu?

"Pari passu" is a Latin phrase that translates to "on equal footing" or "with an equal step." In the context of finance and law, it is used to describe situations where two or more parties are treated equally, particularly regarding their rights or claims in a given context. Here are a few key areas where pari passu is commonly applied:

1. Debt Instruments: In the finance sector, pari passu refers to the equal treatment of creditors in terms of their rights to repayment. When debts or obligations are described as pari passu, it means that they rank equally in terms of priority. Thus, if a debtor defaults or enters bankruptcy, all creditors with pari passu claims would be paid out at the same priority level.

2. Corporate and Investment Law: In corporate law, shares of the same class are often on a pari passu basis. This means that all shares of the class have equal rights to dividends, voting, and other entitlements. Similarly, in investment terms, it might refer to different series of a fund that have the same fee structure or access to investment opportunities.

3. Bankruptcy and Liquidation: During the bankruptcy process, creditors may be assigned different priority levels. Those with pari passu status will share in any distributions from the bankrupt party's estate equally, after more senior creditors are paid but before more junior or subordinated creditors.

4. Syndicated Loans: In a syndicated loan, multiple lenders work together to provide a loan to a borrower. These lenders often agree to treat their loans on a pari passu basis, especially regarding the borrower's collateral and repayment rights.

In summary, pari passu is an important concept that ensures equitable treatment of parties in various legal and financial contexts. It helps maintain order and fairness when dealing with multiple claims or interests.