Keep Well Agreement Bonds

However, a Keepwell agreement may be imposed by bond trusts that trade on behalf of bondholders if the subsidiary is in arrears in its bond payments. Company B asks Company A for a ten-year keepwell contract. In the contract, Company A will keep Company B solvent and financially stable for a decade. Because a Keepwell agreement increases the credit quality of the subsidiary, lenders allow loans for a subsidiary rather than for companies that do not have one. Suppliers are also more likely to offer more favourable terms to companies that have entered into agreements with Keepwell. Due to the financial obligation imposed on the parent company by a Keepwell agreement, the subsidiary may enjoy a better credit rating than it would without a signed agreement from Keepwell. .