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Guarantor Risk


The risk that a guarantor of a structured product becomes insolvent, and as a result defaults on its obligations associated with the product.For example, the credit risk for market-linked securities is that of the issuer of the security and/ or the guarantor (the party guaranteeing that issuer). For a bank deposit, the credit risk lies generally with that of a depositee bank or the guarantor of that bank.

The issuer of a structured product is liable with its own assets, very much like any guarantor to the extent of the guarantee. The underlying assets (of a structured product) do not enjoy special protection. Therefore, investors are exposed not just to the potential loss due to the change in market value of the underlyings (market risk) but additionally, in the worst case, to loss of their investment in full if the issuer or guarantor becomes insolvent (issuer risk and guarantor risk, respectively).



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