Keepwell Agreement

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Keepwell Agreement

An agreement between a parent company and a subsidiary in which the parent company provides a guarantee on the subsidiary's debt for the duration of the agreement. The keepwell agreement reduces the risk to the subsidiary's debt securities and may be beneficial for its stockholders.
References in periodicals archive ?
The Treasury announced three measures jointly with the conservatorship decision: so-called keepwells, under which the Treasury committed to inject up to $100 billion of capital each into Fannie and Freddie as needed to ensure their positive net worth; a Treasury lending facility if needed; and a program under which the Treasury would purchase the GSEs' MBSs in the open market.
Unfortunately, the keepwells were not well explained by the Treasury, and it took some time for market participants to understand that they were the explicit guarantee--and even then, some observers questioned whether $100 billion was enough to cover possible losses at either firm.
providing construction and/or address new litigation or keepwell guaranties.