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Keepwell Agreement

What is 'Keepwell Agreement'

A contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in the agreement.

Explaining 'Keepwell Agreement'

This is a method by which subsidiary companies may increase the creditworthiness of debt instruments and corporate borrowing.


Further Reading


E. Banks, The Palgrave Macmillan Dictionary of Finance, Investment and Banking© Erik Banks 2010
link.springer.com [PDF]
KICK-OUT OPTION See REVERSE KNOCK-OUT OPTION. KICKER [COL] An EQUITY stake offered by a company to a BANK providing LOAN funding or an INVESTOR supplying CAPITAL through a NOTE or BOND. Although the compensation can take different forms, in …

What does the public know about economic policy, and how does it know it?What does the public know about economic policy, and how does it know it?
www.nber.org [PDF]
KICK-OUT OPTION See REVERSE KNOCK-OUT OPTION. KICKER [COL] An EQUITY stake offered by a company to a BANK providing LOAN funding or an INVESTOR supplying CAPITAL through a NOTE or BOND. Although the compensation can take different forms, in …

Financial Transactions in Today's World: Observations from a Transfer Pricing PerspectiveFinancial Transactions in Today's World: Observations from a Transfer Pricing Perspective
heinonline.org [PDF]
KICK-OUT OPTION See REVERSE KNOCK-OUT OPTION. KICKER [COL] An EQUITY stake offered by a company to a BANK providing LOAN funding or an INVESTOR supplying CAPITAL through a NOTE or BOND. Although the compensation can take different forms, in …

Financial Keep-Well Agreements: When Comfort Becomes DiscomfortFinancial Keep-Well Agreements: When Comfort Becomes Discomfort
heinonline.org [PDF]
KICK-OUT OPTION See REVERSE KNOCK-OUT OPTION. KICKER [COL] An EQUITY stake offered by a company to a BANK providing LOAN funding or an INVESTOR supplying CAPITAL through a NOTE or BOND. Although the compensation can take different forms, in …



Q&A About Keepwell Agreement


How do you know that the agreement gives confidence to bondholders?

Bondholders are given an option of converting their bonds into equity in case of financial distress.

Why does the Keepwell Agreement give confidence to lenders?

The Keepwell Agreement gives confidence to lenders because it allows them to take over a subsidiary company if necessary.

Why would a parent company want to do this?

The parent company wants to protect its investment in the subsidiary company, which may be risky due to poor management or economic conditions.

What does this method do for subsidiary companies?

This method allows subsidiaries to increase creditworthiness of debt instruments and corporate borrowing.

What is the Keepwell Agreement?

The Keepwell Agreement gives confidence to lenders and also to a subsidiary's shareholders, bondholders, and suppliers.

What is Keepwell Agreement?

A contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in the agreement.

How does this method work?

The parent company guarantees payment of interest on bonds issued by the subsidiary company.

What is a parent company's role in providing support for its subsidiaries through this agreement?

A parent company provides support for its subsidiaries through this agreement by guaranteeing payment of debts incurred by its subsidiaries.

Who else does the agreement give confidence to?

Suppliers are also given an assurance that they will be paid for goods and services provided by them.