net worth guaranty

net worth guaranty
USA
A clause which limits the amount of a guaranty, usually to 80% to 95% of a guarantor's fair market net worth for the purpose of avoiding fraudulent conveyance liability. Such liability may result if the guarantor does not receive equivalent value in return for its guaranty of a borrower's debt. This clause is often included in upstream guaranties (upstream guaranty) and cross-stream guaranties (cross-stream guaranty). It is usually not included in downstream guaranties (downstream guaranty) because parent companies are generally presumed to receive equivalent value for their guaranty since they are a stockholder of the borrower. The value of a net worth guaranty can fluctuate as the guarantor's net worth is periodically calculated.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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