Upstream Guarantee

DEFINITION of 'Upstream Guarantee'

A contingent liability on a subsidiary's financial statements in which the subsidiary guarantees its parent company's debt. Upstream guarantees are performed to get better financing terms for the parent or to initiate financing.

BREAKING DOWN 'Upstream Guarantee'

An upstream guarantee is often performed in a leveraged buyout situation in which the parent company takes on a substantial level of debt to acquire another firm. Without an upstream guarantee, the offer may not even be able to take place, as there may not be enough collateral on the parent company's balance sheet.