Pledging Ownership Interests in Subsidiary Entities

Many firms conduct business activities through the use of one or more subsidiaries that are responsible for a wide range of operational initiatives including research and development, manufacturing, sales and extending credit to customers.  In addition, subsidiaries may be created to put all of the functional activities associated with a specific product line into one entity.  Since the net asset value of these subsidiaries can be significant it is not surprising the lenders advancing credit to the parent company will seek a pledge of the ownership interests in key subsidiaries as additional collateral for repayment of the obligations of the parent company.  In this report I provide an overview of this type of transaction and a sample collateral pledge agreement.

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