Pari Passu
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
Latin for 'on equal footing.' Describes debt instruments that rank equally in payment priority within their class; recovery is shared pro rata to face value within a pari passu class.
Pari Passu in plain English
Pari passu just means "nobody in this group gets to cut the line." When a company borrows money, some lenders are promised they'll be paid before others if things go bad. Lenders who are pari passu sit in the exact same spot in that payback order, so if there isn't enough money to fully repay them, they each get the same fraction of what they're owed. Think of four friends who all chipped in equally for a group gift and then the plan falls through: whatever cash is left gets split proportionally to how much each put in, and no friend can demand to be made whole first.
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