guarantor

noun

guar·an·tor | \ ˌger-ən-ˈtȯr

, ˌgär-, ˌga-rən-; ˈgar-ən-tər, ˈgär-, ˈga-rən-

Definition of guarantor

1 : one that gives a guaranty (see guarantee entry 1 sense 3)

2 : one that guarantees

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Examples of guarantor in a Sentence

the town police force is the guarantor of our safety

Recent Examples on the Web

Britain, Germany, France, China and Russia, with the EU as a guarantor, remain in the agreement after the U.S. withdrew from the 2015 deal. — Washington Post, "The Latest: EU nations aim to keep Iran atomic deal on track," 29 June 2019 Extralegal violence was one guarantor of order, or at least the order the white South deemed necessary. — Drew Gilpin Faust, The Atlantic, "Race, History, and Memories of a Virginia Girlhood," 18 July 2019 His comments were greeted by outrage in Beijing, which has previously suggested the treaty -- which established a guarantor and observer status for the UK over its former colony -- is no longer applicable. — James Griffiths, CNN, "Diplomatic spat between UK and China after Beijing slams London's 'colonial' attitude to Hong Kong," 4 July 2019 And inside Europe, the skeptics today aren’t in Paris but in the former Soviet vassal-states in the east that, despite all their misgivings, still view the U.S. as the only credible guarantor of their survival as independent nations. — Yaroslav Trofimov, WSJ, "Is Europe Ready to Defend Itself?," 4 Jan. 2019 Puerto Rico’s bankrupt power authority moved closer to a creditor settlement that would ease its potential privatization, agreeing to restructuring terms with a bond guarantor and seeking to postpone further litigation. — Andrew Scurria, WSJ, "Puerto Rico Utility Nears Deal on $9 Billion Restructuring," 10 Apr. 2019 The new system would let mortgage guarantors charge borrowers based on their individual risk. — Bloomberg.com, "Fannie-Freddie Bill Includes Billions for Affordable Housing," 30 Jan. 2018 President Trump knows nothing can replace the nation-state as the guarantor of democratic freedoms and national interests. — Kiron Skinner, WSJ, "Trump Defends the International Order," 11 Dec. 2018 The Great Northern Paper Company — for a century the full-employment guarantor for generations of paper-makers who once made this town hum — built that bandstand. — Thomas Farragher, BostonGlobe.com, "In Maine, a town on the brink of extinction plots a comeback," 13 Feb. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'guarantor.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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10 Aug 2019

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The first known use of guarantor was circa 1828

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More Definitions for guarantor

guarantor

noun

Financial Definition of guarantor

What It Is

In general, a financial guarantee is a promise to take responsibility for another company's financial obligation if that company cannot meet its obligation. The entity assuming this responsibility is the guarantor.

How It Works

Let's assume XYZ Company has a subsidiary named ABC Company. ABC Company would like to build a new plant and thus would like to borrow $10 million from a bank. The bank will probably require XYZ Company to provide a financial guarantee of the loan. By doing so, XYZ Company becomes a guarantor -- it agrees to repay the loan using cash flows from other parts of its business if ABC Company is unable to generate enough cash on its own to repay the debt.

Often a parent company will offer a financial guarantee of bonds issued by one of the parent's subsidiaries, but there are plenty of other situations that might involve guarantees. For example, vendors sometimes require customers to become guarantors if the vendor is uncertain about the customer's ability to pay (this most often happens in transactions involving expensive equipment or other physical property). In these situations, a customer's bank might be a guarantor of the customer's payment, meaning that the bank will pay the vendor if the customer does not.

Financial guarantors don't always guarantee the entire amount of a liability. In bond issues, for example, the financial guarantor might only guarantee the repayment of interest or principal, but not both. Sometimes more than one company can be the guarantor on a security; in these cases, each guarantor is usually only responsible for a pro rata portion of the issue, but in other cases, each guarantor may be responsible for the other guarantors' portions if they also default on their responsibilities.

Railroad companies are well-known for their guaranteed bonds because in order for a railroad company to lease another company's railroad, the lessee must often guarantee the debt of the lessor.

Why It Matters

Financial guarantees mitigate risk, but it is important to note that they do not make a security risk-free. After all, it is still possible that even the guarantor can default on the liability if the liability is too large or if the guarantor is already struggling for other reasons. Regardless, guarantees provide an extra layer of security, which is why guaranteed securities often get higher credit ratings.

Historically, financial guarantors disclosed the nature and size of their guarantees in the notes to their financial statements. It is important to note that guarantees issued between parents and their subsidiaries do not have to be booked as balance sheet liabilities. Examples of this include a parent's guarantee of a subsidiary's debt to a third party or a subsidiary's guarantee of the parent's debt to a third party or another subsidiary.

All financial guarantees must, however, be disclosed. The guarantor must disclose the nature of the guarantee (terms, history, and events that would put the guarantor on the hook), the maximum potential liability under the guarantee, and any provisions that might enable the guarantor to recover any money paid out under the guarantee.

Source: Investing Answers

guarantor

noun