Partial Credit Guarantees

A partial credit guarantee represents a promise of full and timely debt service payment up to a predetermined amount. Typically, the sum that IFC pays out under the guarantee covers creditors irrespective of the cause of default. The guarantee amount may vary over the life of the transaction based on the borrower’s expected cash flows and creditors’ concerns regarding the stability of these cash flows.

IFC tailors guarantees to meet the needs of both borrower and creditors. They are structured to reduce the probability of default of the debt instrument and increase the recovery if default occurs. In general, IFC’s objective is to offer the minimum amount of guarantee necessary to facilitate a successful transaction. This approach has several advantages:

• allowing the borrower in most cases to achieve a lower all-in cost of funds,
• allowing investors to maximize their return given their risk tolerance, and
• allowing IFC to mobilize the maximum amount of financing for its clients for a given level of credit exposure.
  

Partial guarantees can be either in local currency (for domestic transactions) or foreign currency (for cross-border transactions). Local currency partial guarantees are most applicable for a company or project that has local currency revenues but lacks access to local currency financing of the desired tenor. A partial guarantee can help the client better match assets and liabilities by obtaining local currency financing, mitigating the foreign exchange risk that would arise from borrowing in foreign currency.

Cross-border partial guarantees are best for a client company that cannot access international markets on its own because of the high-risk premium associated with the country in which it is domiciled. With a cross-border partial guarantee a client may gain access to international markets by mitigating the sovereign risk associated with the borrowing. Additionally, the IFC Guaranteed Offshore Liquidity Facility (GOLF) may be utilized for cross-border transactions to achieve higher credit ratings through mitigation of currency transfer and convertibility (T&C) risk.

IFC’s partial guarantees benefit clients by bringing them improved market access, longer-term funding, a broader investor base, and embedded liquidity support. IFC’s involvement ensures a thorough due diligence as well as the Corporation’s supervisory role toward the borrower throughout the life of the guaranteed instrument.

Learn more about our partial credit guarantees. (French)

For details on selected partial credit guarantee transactions, please see the following fact sheets:

• Banco BBA-Creditanstalt
• Banco Davivienda
• Chuvash Republic
• City of Johannesburg (French)
• Compartamos
• Municipality of Guatemala City Project
• Russian Standard Bank
• Saudi Orix Leasing Company
• Sociedad Acueducto, Alcantarillado y Aseo de Barranquilla
• TelecomAsia
• Rio Bravo Securitizadora S.A.
  
  
  Last Updated July 31, 2009