Pari passu
What does pari passu mean in a loan agreement?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Pari passu means ranking equally: creditors whose claims are paid in proportion to their size, none ahead of the others. In a club or syndicated facility the lenders' shares rank pari passu, so a recovery is split by share rather than by who acts first; in unsecured lending, a pari passu undertaking promises the lender it will not rank behind the borrower's other unsecured debt. Equal ranking is not an equal outcome — it settles the order, and what each lender recovers still depends on what there is to share.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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- Personal guarantee release
- General security agreement (GSA)
- Subordination
- Intercreditor agreement
- Loan to value ratio (LVR)
- Forced-sale value
- PPSR (Personal Property Securities Register)
- Retention of title
- Purchase money security interest (PMSI)
- Preferential creditors
- Letter of comfort
- Cross-guarantee
- Floating charge
- Structural subordination
- Recovery waterfall
- First mortgage
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