You Can’t Guarantee Love, but a Parent Can Guarantee an Affiliate’s Obligations

There are no binding guarantees or third party obligations without an obligor expressly granting such guarantee for another party’s obligations. In M&A transactions, a party may require that a parent company enter into a limited guaranty to guarantee a parent affiliate’s payment for a number of reasons, including (1) when the purchaser party to the acquisition agreement is a newly formed acquisition entity, (2) when a seller of substantially all assets will no longer have assets to support indemnification obligations, (3) in distressed asset deals, when the seller may default on a retained liability and trigger successor liability claims against purchaser, and (4) in seller-financed transactions, which require the purchaser parent guarantee purchaser payments under a promissory note made by purchaser. Check out this new Parent Guaranty (M&A Transaction) template with drafting notes and optional and alternate clauses.       

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Related Content

• Guaranties Resource Kit
  Browse a selection of practice notes, checklists, and templates addressing the creation and types of guaranties, as well as enforceability issues, before drafting your next limited guaranty for an M&A transaction.

• Enforceability and Types of Guaranties
  Familiarize yourself with the elements of an enforceable guaranty, the various types of guaranties, and related legal issues.

• Limited Guarantee (Private Equity Sponsor) (DE)
  Refer to this template for M&A transactions involving guarantees by private equity sponsors to guarantee payments to be made by the acquisition subsidiary.

• Private Acquisition Agreements Key Negotiating Points Checklist
  Use this checklist as a guide when negotiating acquisition agreements for private M&A deals.

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