Pari passu means "on equal footing": two or more loans, notes or claims rank equally, share payments in proportion to their balances, and neither is paid ahead of the other.
The longer version
Pari passu is Latin for "with equal step." In lending it describes obligations of the same rank. When lenders hold pari passu interests in a loan, every payment and every recovery is split among them in proportion to what each is owed, and no holder is paid first. It is the opposite of subordination, where a junior interest is paid only after the senior one.
In commercial real estate the term shows up in three places. Large CMBS loans are often split into several pari passu notes, each the same rank, held in different securitization trusts, with a co-lender agreement deciding which trust's servicer controls the loan. In a loan participation, participants usually share pari passu with the lead in principal and interest. And in a syndicated loan, the lenders in the facility typically rank pari passu with each other.
Pari passu and pro rata are related but not the same. Pari passu describes rank: these claims stand on the same level. Pro rata describes the split: payments are shared in proportion to each balance. Pari passu claims are paid pro rata within their class. Ranking between classes is set separately, for example an A-note senior to a B-note, with the notes inside each class pari passu.
Equal rank on payments does not mean equal say. Pari passu note holders usually agree in a co-lender or participation agreement who controls servicing decisions, consents and enforcement, and that control often sits with one holder. Reading which holder controls is as important as confirming the notes rank equally.
In Prodeal
On a participated or multi-lender loan, Prodeal gives each lender access scoped to exactly the folders and files it should see, so pari passu holders work from the same current document set without receiving another lender's view.
Common questions
- What does pari passu mean in finance?
- That two or more obligations rank equally. Holders of pari passu claims are paid at the same time and in proportion to their balances, with none paid ahead of the others.
- What is the difference between pro rata and pari passu?
- Pari passu is about rank: the claims are on the same level. Pro rata is about the split: each holder receives a share proportional to its balance. Claims that are pari passu are paid pro rata among themselves.
- What are pari passu notes in CMBS?
- Pieces of one large mortgage loan split into notes of equal rank and placed in different securitizations or held by different lenders. Payments are shared proportionally, and a co-lender agreement decides which holder's servicer controls the loan.
- Does pari passu mean every lender has equal control?
- No. Pari passu describes payment rank. Control over consents, modifications and enforcement is set in the co-lender, participation or intercreditor agreement, and it often rests with one holder.