Partial Credit Guarantee for Bonds

Partial Credit Guarantees (PCGs) for corporate bonds is a credit enhancement mechanism for a corporate debt securities, as an irrevocable undertaking by IFC to pay principal and/or interest due to bond holders, up to a pre-determined amount. In certain circumstances, the PCG can be structured to cover 100% of debt service payments, for a pre-agreed period of time and up to a maximum cumulative amount (typically expressed as a percentage of outstanding principal). As long as the amounts drawn under the guarantee are repaid within a prespecified period, the guarantee is reinstated. In essence, this feature acts like a liquidity facility for the guaranteed debt instrument that can help to avoid a default during short periods of illiquidity (and hence help to not only reduce the expected loss but also the probability of default of the guaranteed debt. 

IFC’s PCGs can be denominated in either local currency (for local currency issuances) or hard currency (typically for cross-border transactions).  The PCG allows IFC to use its triple-A (AAA/Aaa) credit rating, to help an issuer enhance the credit worthiness of its bond issuance. Especially for first time issuers and during periods of uncertainty, PCGs can provide access to debt capital markets and diversify funding sources. They also help issuers establish their name in the market and integrate capital markets into their core financing strategy, potentially paving the way for future issuances without the need for credit enhancement.