What is a pari-plus financing?

A pari-plus financing combines two features. New-money debt receives a claim that ranks alongside existing debt against a shared credit group or collateral pool. It also receives an additional source of recovery that the existing lenders do not share. The first feature is the “pari.” The second is the “plus.”

The label is recent and is not used consistently. Some practitioners reserve it for a structurally senior financing that also has a pari passu claim against the existing loan parties. Others use it more broadly for any pari-ranking new debt with incremental guarantees, collateral or recourse. Some descriptions overlap with double-dip terminology. There is no single market-standard form, so the analysis should identify the obligors, claims, collateral and priority at each entity instead of relying on the label.

What do “pari passu” and the “plus” mean?

Pari passu means “on equal footing.” In a loan context, the phrase may describe payment rank, lien rank or both. Those concepts should be kept separate. Two obligations may rank equally in right of payment but have different collateral. Two liens may share the same priority on specified collateral while the underlying debt has recourse to different guarantors.

Equal rank also does not ensure equal recovery. Recoveries depend on which entities owe or guarantee each debt, which assets secure it, the amount of competing claims at each entity and the applicable intercreditor waterfall. The operative documents, not the adjective pari passu, establish those rights.

In a pari-plus financing, the new debt competes at equal rank with existing debt for at least one material pool of value. The enhancement gives the new lender another advantage. Depending on the structure, that may be a senior claim on assets held by a non-loan party, guarantees from entities that do not guarantee the existing debt, collateral not included in the existing package, or priority over a distinct asset pool. The shared claim prevents the financing from being merely remote structural debt; the separate support creates the “plus.”

How is the additional recovery engineered?

The structure is assembled from permissions already present in the debt documents. A common architecture uses a financing entity outside the existing guarantor group. That entity incurs the new debt and grants liens over assets it owns. Because existing lenders have no claim against that entity or those assets, the new lenders are structurally senior with respect to that value.

The new debt also obtains recourse to the existing credit group at equal rank. That recourse may take the form of a guarantee secured pari passu on the existing collateral. In another variant, the new loan may be incurred within the existing credit group and receive additional guarantees or collateral from an excluded subsidiary or other entity outside the original package. A dedicated asset pool can produce a similar result: both old and new debt share one pool, but only the new debt has priority in another.

No one route should be treated as standard. The following capacities commonly determine whether a proposed route works:

Capacity is rarely fungible across these steps. Permission for a loan party to incur pari passu debt does not necessarily permit it to guarantee debt of an unrestricted subsidiary. An investment basket that permits a transfer does not itself establish lien capacity at the recipient. Ratio debt may carry conditions that a fixed basket does not. Reclassification and basket-stacking rules can change the amount available, but they do not eliminate the need for affirmative authority at every step.

Why can the structure avoid an uptier vote?

An uptier changes the priority of existing lenders, commonly by placing participating debt ahead of non-participating debt through amendments, exchanges and new intercreditor arrangements. Its execution therefore raises the question whether majority lenders may approve the change or whether each adversely affected lender holds a protected sacred right. See What is a Serta uptier? for that mechanism.

A pari-plus financing can take a different path. If the agreement already permits additional pari passu debt, pari liens, the relevant guarantees and the separate collateral arrangement, the borrower may not need to amend the existing lenders' payment or lien priority. No majority vote is required to strip priority because no existing claim is expressly moved down. That can make the structure attractive when an uptier vote is unavailable, expensive or likely to produce a sacred-rights dispute.

This is a transactional advantage, not a universal conclusion. Agent action, intercreditor joinders, collateral releases or amendments to related provisions may still require consent. A document may also protect against indirect impairment or prohibit additional credit support that is not shared equally. The availability of a no-amendment route depends on the full covenant package and the steps actually proposed.

What happens to existing lenders?

Existing lenders may remain exactly where their documents placed them. Their debt can continue to rank pari passu in payment and retain its lien priority on the original collateral. That formal position does not prevent economic impairment.

The first effect is dilution in the shared pool. The new debt adds another claim of at least equal rank against value that already supported the existing debt. Unless the new money creates enough incremental enterprise value to offset the added claim, each existing lender has a smaller share of that pool in a downside.

The second effect is asymmetry outside the shared pool. The new lenders may recover from an entity, guarantee or asset pool that the existing lenders cannot reach. Proceeds from that separate support reduce the new lenders' remaining exposure, while existing lenders continue to depend on the common pool. The precise result turns on claim caps, turnover provisions, allocation rules and how recoveries at one entity reduce claims at another.

This is why “not subordinated” is an incomplete economic description. Existing lenders are not necessarily junior to the new debt on the collateral they already share. They are worse positioned because equal-ranking debt competes for that collateral while holding an additional recovery path.

How does pari-plus differ from an uptier, a drop-down and a double-dip?

A pari-plus transaction may use a transfer associated with a drop-down, but the assets need not leave the restricted group or the existing credit group entirely. The enhancement can come from value already held outside the original collateral package, from a non-guarantor restricted subsidiary, or from credit support the agreement permits only for the new debt.

The distinction from a double-dip is especially important. A double-dip creates two claims connected to the same enterprise, commonly through a separate intercompany obligation. Pari-plus, as used here, describes an equal-ranking claim plus a recovery enhancement, which may be structural seniority or exclusive collateral rather than a second claim against the same enterprise. Because practitioners sometimes apply “pari-plus” to double-dip variants, the documents must control the classification. See What is a double-dip financing? for the separate claim architecture.

What drafting responses address pari-plus capacity?

Drafting should target unmatched support, not merely debt that is formally senior. A conventional anti-uptier sacred right may not reach a transaction completed entirely under existing baskets.

One response requires any pari passu debt to share material guarantees and collateral with the existing debt on an equal and ratable basis. Related provisions can prevent a loan party from guaranteeing debt of a non-loan party unless the existing obligations receive equivalent support, and can restrict non-loan parties from guaranteeing or securing selected debt without joining the existing package.

Debt and lien baskets should be tested by entity and asset pool. Limits may address debt incurred by unrestricted subsidiaries, excluded subsidiaries and non-guarantor restricted subsidiaries; liens on assets outside the original collateral; and guarantees of obligations incurred at those entities. Investment and disposition provisions can cap value transferred to those entities or condition a transfer on the recipient becoming a guarantor and pledging its assets.

Anti-stacking and reclassification provisions matter where several permissions could be combined. Drafting may aggregate investments, dispositions, guarantees and liens used in a related series of transactions, and may prevent capacity from being reclassified after the financing closes. Definitions of debt, investments, collateral and loan parties must align with the operative restriction.

The amendment provision remains relevant even when the initial blocker is substantive. A borrower should not be able to remove the restriction, enlarge an exception or narrow a connected definition with a vote below the negotiated threshold. At the same time, exceptions must preserve ordinary-course intercompany activity, acquisition financing, cash management and legitimate incremental facilities. How LME blockers are actually drafted explains how to test those elements as one system.

The practical review is a before-and-after map. For each debt instrument, identify the borrower, guarantors, collateral, lien rank and claims at each entity. Then identify which lenders share each pool and which do not. That map reveals the “plus” even when the transaction documents never use the term—and avoids forcing a new, unsettled label onto a structure it does not accurately describe.