Guarantee
Short definition
A guarantee is a third party’s (parent, sponsor, individual) promise to perform the borrower’s obligation. Unlike collateral it is not an asset but a payment promise; it leaks into group leverage and cross-default.
Detailed explanation
On-demand versus suretyship (accessory to the primary debt) is a legal split. Cap, tenor and covered amounts (principal versus interest) must be in the text. A full sponsor guarantee turns project finance into corporate debt.
Guarantee fees raise transfer-pricing and thin-capitalisation issues. In groups, corporate benefit must be documented.
Why it matters for the CFO
Off-balance SPV debt eats parent capacity via the guarantee. The CFO cannot declare a dividend without mapping this hidden leverage.
How to read it
Guarantee amount / parent EBITDA is a hidden leverage turn. Drawability hangs on the primary borrower’s default.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.