Module 4 · Chapter 13

Guarantees and Security: a Primer

A guarantee makes more of the group liable for the loan. Security puts lenders first in the queue for particular assets. The lenders here took the first and chose not to take the second.

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In this chapter

  • Why the lenders took guarantees but no security
  • What each part of the guarantee clause does
  • The checks that make each guarantee hold

13.1Guarantees and security in one paragraph

A lender can strengthen a loan in two ways, which the market calls credit support. A guarantee makes another company liable for the same debt, so the lender has more companies to claim against. Security gives the lender a right over particular assets, so it is paid first from them if the borrower fails. Sunrise has guarantees from Atlas's two operating subsidiaries, and no security at all.

Key point

A guarantee adds companies to claim against. Security puts the lender first in the queue. Each guarantee is still an unsecured claim, ranking pari passu (equally) with the guarantor's other ordinary creditors. So a guaranteed loan is not a secured loan.

Also in this chapter

  1. Why Sunrise has guarantees but no security
  2. Three promises in one clause
  3. A guarantee that survives redrawing and amendment
  4. A Guarantor that pays must wait its turn
  5. Each Guarantor's board must see a benefit
  6. Releasing a Guarantor needs every lender
  7. The security words you need
  8. A comfort letter is not a guarantee
  9. Your job

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