From the perspective of a lender, the consequence of one or more explicit guarantees is that the guarantor(s) are legally committed; the lender’s risk would be expected to be reduced by having access to the assets of the guarantor(s) in the event of the borrower’s default. Effectively, this may mean that the guarantee allows the borrower to borrow on the terms that would be applicable if it had the credit rating of the guarantor rather than the terms it could obtain based on its own, non-guaranteed, rating. The principles and methodologies of pricing a guarantee in these circumstances are similar to those explained for loan pricing in Section C.1.2.
TPG2020 Chapter X paragraph 10.158
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By OECD
Category: OECD Transfer Pricing Guidelines (2017) | Tag: Financial benefit, Financial guarantee, Financial transactions, Treasury functions
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