Keep Well Agreement Definition

Credit improvement is a risk mitigation method by which a company attempts to increase its solvency in order to attract investors to its securities offerings. Increased credit reduces the risk of credit or default, which increases a company`s overall solvency and reduces interest rates. For example, an issuer may use credit enhancements to improve the credit quality of its bonds. A Keepwell agreement is a way to improve a company`s solvency by obtaining third-party credit support. Company B is asking Company A for a 10-year agreement on Keepwell. In the contract, A Firm B will remain solvent and financially stable for a decade. Subsequently, the chances of success in China are much greater thanks to the Keepwell agreement. The warranty time set depends on what both parties agreed upon when the contract was concluded. As long as the duration of Keepwell`s contract is still active, the parent company guarantees all interest payments and/or repayment obligations of the subsidiary. When the subsidiary is in solvency problems, its bondholders and lenders have made sufficient use of the parent company.

Therefore, auditors should verify the language of the Keepwell agreement and attempt to determine potential liabilities that are not disclosed in the financial statements where there is a De Keepwell agreement. Information on potential liabilities related to the agreement can be obtained from management and third parties. Keepwell`s agreements act as loss quotas and should be considered collateral in accordance with the financial accounting standard. Courts maintain such agreements as a legally enforceable obligation when they meet certain standard language criteria. However, a Keepwell agreement may be imposed by bond trustees on behalf of bondholders if the subsidiary is late in its bond payments. However, a Keepwell agreement is the result of negotiations prior to its creation, and it is generally more vague and less specific than traditional legal obligations. There is no guarantee that such an agreement will be implemented, as it cannot be invoked legally. The aforementioned restrictions on the City and EDC remedies, under Section 6.5, may not in any way restrict or restrict any other city or edC right under this agreement or in any other way: including the rights or remedies of the City or EDC (x) under the guarantee and property agreement or under other safeguards, compensations, instruments or agreements or (y) under section 3.6 (standard rate), 6.2 (d) and (e), section 7 (city right to honour developer obligations), section 9 (insurance) or (11) (damage and destruction).