guarantor
noun
, ˌgär-, ˌga-rən-; ˈgar-ən-tər, ˈgär-, ˈga-rən-
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Definition of guarantor
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Examples of guarantor in a Sentence
Recent Examples on the Web
Harder said that Trump was the only guarantor of the loans in question. — CBS News, "MSNBC's Lawrence O'Donnell retracts story on Trump finances after Trump lawyers threaten to sue," 29 Aug. 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 The United States previously pushed back against Bahrain on human rights matters, using its influence as the island's defense guarantor, with over 7,000 U.S. troops attached to a sprawling base in Manama that hosts the Navy's 5th Fleet. — Fox News, "Bahrain prosecutors charge 169 over alleged militant ring," 25 Sep. 2018 But bringing down the sticker price is the ultimate guarantor of market success, and the big driver there is battery costs. — David Roberts, Vox, "China made solar panels cheap. Now it’s doing the same for electric buses.," 24 July 2018 The statement adds that ARK Group is hopeful that Big Beat Dallas and the lease guarantor, Restaurants Unlimited, will work out a plan to resume operations. — Robert Philpot, star-telegram, "Something big is going to stop beating at Toyota Music Factory (update No. 2)," 29 May 2018 But polls show Putin still has the support of most Russians of all age groups, who see him as a guarantor of prosperity, stability and security in the face of an increasingly threatening West. — Amie Ferris-rotman, Anton Troianovski, Philly.com, "Russian police detain more than 1,300 protesting against Putin," 5 May 2018 But polls show Putin still has the support of most Russians of all age groups, who see him as a guarantor of prosperity, stability, and security in the face of an increasingly threatening West. — Washington Post, BostonGlobe.com, "Russian police detain more than 1,600 protesting against Putin," 5 May 2018 Moscow also acts as a security guarantor in a long-running standoff with neighboring Azerbaijan. — Matthew Bodner, The New Republic, "Armenia Is Breaking the Post-Soviet Mold," 4 May 2018These 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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More Definitions for guarantor
guarantor
nounFinancial 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
English Language Learners Definition of guarantor
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guarantor
noun
, ˌgär-\
Kids Definition of guarantor
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guarantor
noun
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