Keepwell Agreement Sample

Credit quality improvement is a risk-reduction method in which a company tries to increase its creditworthiness in order to attract investors to its securities offerings. Improving credit reduces the risk of credit or debt default, which increases a company`s overall solvency and reduces interest rates. For example, an issuer may use a credit quality improvement to improve the credit quality of its bonds. A Keepwell deal is a way to improve a company`s credit by getting third-party credit support. A Keepwell agreement is a contract between a parent company and its subsidiary for the maintenance of solvency and financial assistance for the duration set out in the agreement. Keepwell`s chords are also called welfare letters. 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. The ongoing restructuring case includes the issuance of super short commercial paper by PKU Group and bonds of Nuoxi Capital Limited (“Nuoxi”) and Kunzhi Limited (“Kunzhi”), which benefit from a Keepwell document provided by PKU Group. In accordance with this Keepwell Act, PKU Group has undertaken to ensure (among other things) that “each issuer and the guarantor have sufficient liquidity to ensure the timely payment by each issuer and by the guarantors of the sums to be paid in connection with or in respect of the bonds”. Despite an extension of its lifespan, the PKU Group did not repay the commercial paper by the due date. Another example is often found in the world of wealth financing, where the owner of an asset would enter into a standby lease agreement with the lessee`s parent company, so that if something negative affected the initial lease between the owner and the lessee, the parent company would be required to take over the leasing of the asset and pay the landlord rent at a rate, at least the same level as the original case. The goal is to ensure that the owner always has a constant flow of rental income, which is essential for the owner when the owner has organized his own loan to finance the acquisition of the asset. Regardless of the actual content of a Keepwell document, we found that the central theme would generally remain the same: that a Keepwell act is essentially a series of contractual obligations aimed at giving the receiving party a sense of comfort (indeed, we have worked on transactions in which the parties expressly require that the document in question be called an administrative letter).

. . .

Posted in: Uncategorized