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Negative Pledge Agreement

Negative Pledge Agreement Template for Saudi Arabia

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Key Requirements PROMPT example:

Negative Pledge Agreement

"I need a Negative Pledge Agreement under Saudi Arabian law for a syndicated facility agreement closing on March 15, 2025, where the borrower is a manufacturing company with subsidiaries in multiple GCC countries, and we need to include specific carve-outs for existing project finance security."

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Document background
The Negative Pledge Agreement serves as a critical risk mitigation tool in Saudi Arabian financing transactions, providing lenders with protection against the dilution of their credit position through the creation of competing security interests. This document is typically used in conjunction with facility agreements, particularly in unsecured lending scenarios where the lender seeks to maintain the borrower's asset base available for general creditor claims. The agreement must be structured to comply with both Shariah principles and Saudi Arabian commercial regulations, including the Commercial Courts Law and Banking Control Law. It contains specific provisions detailing prohibited actions, permitted exceptions, monitoring requirements, and consequences of breach, all tailored to be enforceable within the Saudi legal system.
Suggested Sections

1. Parties: Identification of the parties including the borrower/promisor and the beneficiary/promisee

2. Background: Context of the agreement, including reference to any facility agreement or main financing transaction

3. Definitions: Key terms used in the agreement, including 'Security Interest', 'Permitted Security', and 'Secured Assets'

4. Negative Pledge Covenant: Core undertaking not to create or permit to subsist any security interest over the specified assets

5. Permitted Security: Exceptions to the negative pledge covenant, listing specifically allowed security interests

6. Representations and Warranties: Statements about the borrower's current position regarding existing security interests and capacity to enter into the agreement

7. Duration: Period for which the negative pledge remains in effect, typically linked to the underlying facility

8. Compliance and Reporting: Obligations to report on compliance and notify of any potential breaches

9. Remedies: Consequences of breach and available remedies, subject to Shariah principles

10. Governing Law and Jurisdiction: Confirmation of Saudi law as governing law and jurisdiction of Saudi courts

Optional Sections

1. Further Assurance: Additional undertakings to perfect or protect the negative pledge, used in complex transactions

2. Shariah Compliance Declaration: Explicit confirmation of Shariah compliance, used when required by regulatory authorities or Islamic financial institutions

3. Multiple Beneficiaries Provisions: Provisions dealing with multiple beneficiaries of the negative pledge, used in syndicated facilities

4. Cross-Border Provisions: Additional provisions for international transactions involving assets in multiple jurisdictions

5. Security Agent Provisions: Provisions regarding the appointment and role of a security agent, used in syndicated facilities

6. Accession Provisions: Mechanism for additional parties to accede to the agreement, used in expandable facilities

Suggested Schedules

1. Schedule 1 - Specified Assets: Detailed list of assets covered by the negative pledge

2. Schedule 2 - Permitted Security: Detailed list and description of permitted security interests

3. Schedule 3 - Form of Compliance Certificate: Template for periodic compliance certification

4. Schedule 4 - Existing Security Interests: List of any pre-existing security interests that are carved out from the negative pledge

5. Appendix A - Form of Accession Deed: Template for new parties joining the agreement, if applicable

6. Appendix B - Form of Notice to Third Parties: Template for notifying relevant third parties of the negative pledge restrictions

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Security Interest
Permitted Security
Secured Assets
Quasi-Security
Facility Agreement
Finance Documents
Financial Indebtedness
Group
Subsidiary
Material Adverse Effect
Permitted Disposal
Business Day
Default
Event of Default
Effective Date
Termination Date
Secured Parties
Security Agent
Compliance Certificate
Existing Security
Shariah Compliant Security
Islamic Financing Arrangement
Specified Assets
Permitted Transaction
Enforcement Event
Security Document
Relevant Jurisdiction
Saudi Business Day
Governing Law
Authorized Person
Security Period
Secured Obligations
Related Rights
Disposal
Encumbrance
Permitted Financial Indebtedness
Restricted Party
Specified Jurisdiction
Working Day
Relevant Industries

Banking and Financial Services

Islamic Finance

Real Estate and Construction

Manufacturing and Industrial

Energy and Natural Resources

Healthcare

Telecommunications

Retail and Consumer Goods

Transportation and Logistics

Technology

Relevant Teams

Legal

Finance

Treasury

Compliance

Risk Management

Corporate Banking

Islamic Banking

Credit

Corporate Secretariat

Investment

Relevant Roles

Legal Counsel

Finance Director

Chief Financial Officer

Treasury Manager

Compliance Officer

Risk Manager

Corporate Banking Manager

Islamic Finance Specialist

Credit Risk Officer

Corporate Secretary

Investment Manager

Shariah Compliance Officer

Industries
Basic Law of Governance (Royal Order No. A/90): Fundamental law establishing Shariah as the basis of Saudi Arabian legal system, which affects all contractual relationships and their enforcement
Commercial Courts Law (Royal Decree No. M/93): Governs commercial disputes and enforcement of commercial contracts, including security arrangements and negative pledges
Banking Control Law (Royal Decree No. M/5): Regulates banking activities and financial transactions, including restrictions on creating security interests and negative pledge arrangements
Commercial Pledge Law (Royal Decree No. M/86): Regulates creation and enforcement of commercial pledges and security interests, which is relevant for understanding the scope and limitations of negative pledge agreements
Companies Law (Royal Decree No. M/3): Governs corporate entities' capacity to enter into contracts and create security interests, including restrictions on pledging assets
Enforcement Law (Royal Decree No. M/53): Provides framework for enforcement of commercial documents and contracts, crucial for understanding remedies available in case of breach
Commercial Courts Procedure Law: Sets out procedures for resolving commercial disputes, including those arising from negative pledge agreements
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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