Pari passu
Asset-Backed Securities glossary · Asset Backed Securities
Definition
Tranches that share equally in losses and prepayments according to their relative balances, with no order of priority among them.
Pari passu in plain English
"Pari passu" is Latin for "on equal footing," and it means a group of bonds are treated as equals, with no one first in line. When money comes in or losses hit, each bond shares in proportion to its size rather than by rank. Picture three friends who chipped in $50, $30, and $20 for a group order; if a refund or a shortfall shows up, they split it 50/30/20, and nobody gets paid or hurt before the others. This matters because in many deals some bonds DO get priority, so "pari passu" is the label for the ones that deliberately don't.
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