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The purchase of the financial guarantee of a large insurance company to raise funds. In the context of project financing, the issuance of a guarantee or additional collateral to reinforce the credit strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting.
An addition to a bond issue that improves the issue's safety of principal and interest. For example, the purchase of insurance guaranteeing payments on a bond issue is credit enhancement.
A method of reducing the risk of extending credit to a borrower. It can include requiring collateral,a stand-by letter of credit,a comaker,a guarantor,or any other means.