Keepwell:
It’s a type of credit protection mainly seen in China’s $885 billion market for dollar bonds (those sold outside mainland China, denominated in U.S. dollars). The keepwell provision often involves a Chinese company’s pledge to keep an offshore subsidiary that is issuing the bonds solvent — but without any guarantee of payment to the bondholders. (Actual guarantees require regulatory approval but keepwells don’t.) The clauses often include an agreement where the parent will purchase equity interest or assets in the offshore subsidiary as a way of servicing payments on overseas notes, according to an analysis by Fitch Ratings. Terms can vary, with different definitions of default, trigger events or what actions the keepwell provider promises to take. [“What ‘Keepwell’ Means in Case of China Bond Defaults,” Bloomberg/WaPo]
