A “Parent Company Guarantee (PCG)” is a legal and financial commitment made by a parent company to assume responsibility for the debts, obligations, or liabilities of its subsidiary or subsidiaries. Essentially, it serves as a form of assurance to creditors or other parties that the subsidiary’s obligations will be met, even if the subsidiary itself is unable to fulfill them.

By providing a PCG, the parent company demonstrates its support for the subsidiary and its commitment to ensuring its financial stability. This can be particularly important in situations where the subsidiary may not have a strong financial standing on its own, such as when it is a newly established entity or operating in a high-risk industry.

A PCG is often required by lenders or other stakeholders as a condition for providing financing or entering into contracts with the subsidiary. It helps to mitigate the perceived risk associated with dealing with the subsidiary and provides greater assurance that financial obligations will be met.

However, providing a PCG also carries risks for the parent company, as it effectively exposes the parent to potential liabilities incurred by the subsidiary. Therefore, companies must carefully assess the implications and potential consequences before agreeing to provide a PCG.