What is it
A financial guarantee is a contract by a third party (guarantor) to back the debt of a second party (the creditor) for its payments to the ultimate debtholder (investor).
Finance Guarantee uses
Some examples include a large corporation (the creditor) borrowing a significant amount of money from the market, backed by a guarantee from a large insurance company (guarantor). Another example might be a shipping company (the creditor) seeking a guarantee for the value of a shipment, backed by a guarantee from a maritime insurance company (guarantor). Financial guarantees are essentially insurance policies that guarantee that a debt will be paid if the debt issuer experiences financial difficulties. For large companies, financial guarantees are typically issued by insurance companies or other large, extremely stable financial companies, frequently a parent company for the benefit of a subsidiary. Financial guarantees can result in a higher credit rating, lowering the cost to the issuer.
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