If a parent company backs the debt of a foreign subsidiary, the borrowing capacity of the parent might be reduced as creditors are not willing to provide as many funds to the parent if those funds may possibly be needed to rescue a parent's subsidiary.

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When a parent company guarantees the debt of its foreign subsidiary, the parent's capacity to borrow may be reduced as creditors may be hesitant to lend more money to the parent if they think it might be used to rescue the subsidiary. This is because if the subsidiary runs into financial trouble and is unable to pay back its debt, the parent company will be responsible for repaying it. This could put a strain on the parent company's finances and affect its creditworthiness, making lenders less willing to lend to them in the future.

If a Parent Company Backs the Debt of a Foreign