Does Budget have specific limitations on the maximum potential amount of future payments that it could be required to make under these guarantees and indemnifications?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
In the ordinary course of business, we enter into numerous agreements that contain standard guarantees and indemnities whereby we agree to indemnify another party, among other things, for performance under contracts and any breaches of representations and warranties thereunder. In addition, many of these parties are also indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases, sales or outsourcing of assets, businesses or activities, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities and use of derivatives and (v) issuances of debt or equity securities. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) licensees under licensing agreements, (iv) financial institutions in credit facilities are used to requity security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many may survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that we could be required to make under these guarantees, nor are we able to develop an estimate of the maximum potential amount of future payments that the could be required to make under these guarantees, are not subject to predictability. With respect to certain of the agreementoned guarantees, such as indemnifications provided to landlords against third-party claims for the use of real estate property leased by us, we maintain insurance coverage that mitigates our potential exposure.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, Budget enters into agreements that contain standard guarantees and indemnities. These agreements require Budget to indemnify another party for performance under contracts and any breaches of representations and warranties. These guarantees or indemnifications are granted under agreements governing purchases, sales or outsourcing of assets, leases of real estate, licensing of trademarks, access to credit facilities and use of derivatives, and issuances of debt or equity securities.
These guarantees or indemnifications benefit buyers in sale agreements and sellers in purchase agreements, landlords in lease contracts, licensees under licensing agreements, and financial institutions in credit facilities. While some guarantees are limited to the duration of the underlying agreement, many may extend beyond the agreement's term or into perpetuity, unless subject to a legal statute of limitations.
Importantly, the FDD states that there are no specific limitations on the maximum potential amount of future payments that Budget could be required to make under these guarantees. Additionally, Budget is unable to develop an estimate of the maximum potential amount of these future payments, indicating that these obligations are not subject to predictability. However, Budget maintains insurance coverage to mitigate potential exposure for certain guarantees, such as indemnifications provided to landlords against third-party claims for the use of real estate property leased by Budget.