A keepwell agreement is a type of agreement that is used in financial transactions, especially with respect to loans and debt instruments. The purpose of a keepwell agreement is to provide assurance to investors and lenders that a company will maintain its financial position and be able to meet its financial obligations.
There are several forms of keepwell agreements, each with their own unique features and requirements. In this article, we will explore the various forms of keepwell agreements and their pros and cons.
First, we have the unconditional keepwell agreement. This type of agreement is the most straightforward and provides the highest level of assurance to lenders. In an unconditional keepwell agreement, the parent company guarantees the performance of the subsidiary, regardless of its financial position. This means that even if the subsidiary is struggling financially, the parent company will step in and fulfill its financial obligations.
Next, we have the limited keepwell agreement. This type of agreement provides less assurance to lenders, as it is limited in scope. In a limited keepwell agreement, the parent company only guarantees the performance of the subsidiary up to a certain amount, or for a certain period of time. This means that if the subsidiary goes beyond the scope of the agreement, the parent company may not be obligated to step in and fulfill its financial obligations.
Finally, we have the conditional keepwell agreement. This type of agreement provides the least amount of assurance to lenders, as it is contingent upon certain conditions being met. In a conditional keepwell agreement, the parent company only guarantees the performance of the subsidiary if certain conditions are met, such as the subsidiary maintaining a certain financial position or meeting certain performance metrics.
So, which form of keepwell agreement is best for your company? It depends on your specific situation and the level of assurance your lenders require. If you have a strong financial position and want to provide maximum assurance to lenders, an unconditional keepwell agreement may be the best choice. If you have some financial concerns and want to limit your exposure, a limited keepwell agreement may be appropriate. And if you have specific conditions you can meet, a conditional keepwell agreement may be a good option.
In conclusion, keepwell agreements are an important aspect of financial transactions, providing assurance to lenders and investors. Understanding the different forms of keepwell agreements and their pros and cons can help you make informed decisions about which type to use. As a professional, I hope this article has been helpful in providing insight into the various forms of keepwell agreements.