subguarantor

A subguarantor is a party that provides a guarantee for the obligations of another guarantor under a guarantee or indemnity. The subguarantor's promise is to satisfy the guaranteed obligations if the primary guarantor fails to do so, thereby extending credit support to the beneficiary or lender.

The arrangement is commonly used to enhance the creditworthiness of a primary guarantor, especially in international trade, export finance, project financing, and syndicated lending. The exact scope of the subguarantee—the underlying obligations covered, the monetary cap, and the events that trigger payment—is set out in a separate subguarantee agreement and related documents. In many cases, the subguarantee is activated only after a claim against the main guarantor is made and proven, and it may be subject to subrogation rights in favor of the subguarantor.

Relation to other concepts: a co-guarantor is jointly and severally liable from the outset, whereas a subguarantee typically arises as a second layer of assurance. Subguarantees can involve negotiations with export credit agencies or banks that require a local or additional guarantor to support the primary guarantor.

Risks and limitations: for the subguarantor, the main risk is financial loss if the guarantor defaults; for the beneficiary, relying on a subguarantee adds an additional source of payment but also potential delays. Legal certainty comes from clear contract terms and governing law, notice provisions, and subrogation rights.

See also: guarantee, bank guarantee, counter-guarantee, suretyship.