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Keepwell Agreement Vs Guarantee

We can either write the term as two or three words, that is, either hold the agreement, or agree. When a subsidiary is having difficulty obtaining financing to continue its operations, a Keepwell agreement is useful. The parent company will support it financially and help it maintain solvency during the period defined in the agreement. When an entity enters into a De Keepwell agreement, the solvency of corporate bonds and debt securitiesThe debt instrument is an investment income asset that legally obliges the debtor to grant interest and repayments to the lender. The parent company can, for example, guarantee that certain financial ratios will be maintained. It can also ensure that the subsidiary has some capital. Company A agrees and the two sign the agreement. The creditworthiness of Company B is now much higher than before. It can now get credit at much lower interest rates. A Keepwell agreement is a contract between a parent company and its subsidiary to maintain solvency and financial assistance for the duration of the agreement. Keepwell chords are also called comfort letters. This is a type of credit protection that is mainly seen in the Chinese market of $791 billion of dollar bonds (sold outside mainland China, in U.S.

dollars). Keepwell`s regime often involves a Chinese company`s commitment to keep an offshore subsidiary on the ground that issues bonds — but without guarantee of payment to bondholders. (Actual guarantees must be subject to administration authorization, but keepwell is not).) The clauses often contain an agreement in which the parent company will purchase equity units or assets in the offshore subsidiary to serve payments on foreign bonds, as shown by an analysis by Fitch Ratings. Terms may vary, with different definitions of the standard, trigger events or what actions the Keepwell provider promises to take. In early November, a mainland Chinese court effectively recognized for the first time creditors` claims on offshore bonds of a Chinese default, which were backed by a Keepwell provision. The contract in the case of CEFC Shanghai International Group Ltd. could set a precedent for others facing similar bottlenecks, including the Peking University group. The exuberant conglomerate with medical and Internet companies entered in February in a judicial restructuring of the debt.