Coguarantees

Coguarantees are a form of suretyship in which two or more persons or entities agree to guarantee the performance of a debtor’s obligations under a contract or loan. Each guarantor undertakes to satisfy the debt if the primary obligor fails to do so, thereby providing the lender with additional security beyond a single guarantor.

Liability under a coguarantee depends on the terms of the guarantee and applicable law. In many contracts, the liability is joint and several, meaning the lender may demand payment in full from any one guarantor and seek contribution from the others. Some guarantees, however, may cap each guarantor’s exposure or allocate liability in proportion to an agreed share. The precise risk allocation is typically specified in the guarantee instrument and may be affected by local statutes governing surety and guarantees.

Enforcement and termination: A guarantor’s obligation usually arises upon a default by the borrower or other specified nonperformance. Before enforcing a guarantee, lenders may be required to pursue remedies against the borrower. If a guarantor pays the debt, they usually acquire subrogation rights to recover amounts paid from other guarantors. Guarantees can be released, amended, or terminated by agreement, by changes in the underlying obligation, or upon full discharge of the guaranteed debt. Certain changes to terms, such as extending the loan or increasing the obligation, may require the consent of all guarantors.

Practical considerations: Coguarantees are common in corporate and project finance to strengthen lenders’ credit exposure. They impose significant risk on guarantors, who should consider exposure limits, potential impact on credit, and the conditions for release or modification when negotiating the guarantee.