Pari passu

Ranking equally. Pari passu preferred share classes are paid their preferences at the same time, sharing proportionally if proceeds are insufficient.

Example

Preferences of 20,000,000 and 10,000,000 sharing a 25,000,000 exit two-thirds and one-third.

Important

Whether classes are senior or pari passu matters most at exits below total preferences.

Related terms

• Seniority — Where a particular claim sits in the queue for payment if the borrower fails. Secured claims are paid from their collateral first, then senior unsecured claims, then subordinated ones, with shareholders last.
• Liquidation Preference — A contractual right for preferred shareholders to receive a stated multiple of their investment back before common shareholders receive anything, in a sale or wind-down.

Lessons that explain it

• With several preferred classes, each one decides whether to convert — When a company has several classes of preferred shares, exit proceeds are divided in order of seniority, and each class chooses between its preference and converting. Working through exits of different sizes shows how common shareholders are affected. (12 min)

All 578 terms in the Investing glossary