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Category — Market Participants

Guarantor is a financial term that describes a person who guarantees payment of a bond, loan or other financial obligation in the event of default by the borrower.

The presence of a guarantor is required when the ability of the principal debtor or principal to fulfill its obligations to the creditor (counterparty) under the contract is questioned, or when there is some public or private interest that requires protection from the consequences of default or delay in payments under the obligations of the principal.

The state and its bodies, institutions, enterprises, firms, banks can act as the guarantor of the bond. The most common case is when the parent company of the issuer acts as the guarantor of the bond. In some cases, the issue of bonds can be guaranteed by several guarantors .

The guarantor acts as a kind of co-signer as they pledge their own assets or services if the situation arises in which the original debtor cannot fulfill its obligations.

The existence of a bond guarantor leads to a decrease in the risk of default on obligations and increases the investment attractiveness of the asset, its contribution increasing the credit rating of the bond. In some cases, the presence of a guarantor also allows the issuer to issue bonds with a lower coupon rate.
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