What is the credit risk exposure of Petro Stopping Center in relation to guarantees issued by the company?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
element of the Company's finance debt that is contractually floating rate or has been swapped to floating rates. If the interest rates applicable to these floating rate instruments were to have changed by one percentage point on January 1, 2025, it is estimated that the Company's finance costs for 2025 would increase by approximately $30 million (2023 $30 million).
(b) Credit risk
Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due causing financial loss to the Company and arises from cash and cash equivalents, derivative financial instruments and deposits with financial institutions and principally from credit exposures to customers relating to outstanding receivables. Credit exposure also exists in relation to guarantees issued by the Company under which the outstanding exposure incremental to that recognized on the balance sheet at December 31, 2024 were $480 million (2023 $473 million) in respect to guarantees of borrowings. Of this amount, $317 million (2023 $371 million) of third party guarantees relates to guarantees of borrowings. There is no liability recorded at December 31, 2024 in relation to these guarantees (2023 $0). For all guarantees, maturity dates vary, and the guarantees will terminate on payment and/or cancellation of the obligation. In general, a payment under the guarantee contract would be triggered by failure of the guaranteed party to fulfil its obligation covered by the guarantee (being the earliest period the guarantee can be called).
The Company has a credit policy, approved by the CFO that is designed to ensure that consistent processes are in place throughout the Company to measure and control credit risk. Credit risk is considered as part of the risk-reward balance of doing business. On entering into any business contract the extent to which the arrangement exposes the Company to credit risk is considered. Key requirements of the policy include segregation of credit approval authorities from any sales, marketing or trading teams authorized to incur credit risk; the establishment of credit systems and processes to ensure that all counterparty exposure is rated and that all counterparty exposure an
Source: Item 14 — Other investments (FDD pages 131–208)
What This Means (2025 FDD)
According to Petro Stopping Center's 2025 Franchise Disclosure Document, credit risk is defined as the potential financial loss to the company if a customer or counterparty fails to meet their obligations. This risk arises from various financial instruments, cash equivalents, and primarily from customer credit exposures related to outstanding receivables.
Specifically, Petro Stopping Center faces credit exposure due to guarantees it has issued. As of December 31, 2024, the outstanding exposure related to these guarantees was $480 million, compared to $473 million in 2023. A portion of these guarantees, amounting to $317 million in 2024 (and $371 million in 2023), relates to third-party borrowings. The document states that no liability was recorded in relation to these guarantees as of December 31, 2024. The guarantees have varying maturity dates and will terminate upon payment or cancellation of the underlying obligation. A payment under the guarantee would be triggered if the guaranteed party fails to fulfill their obligation.
To manage this credit risk, Petro Stopping Center has a credit policy approved by the CFO. This policy aims to ensure consistent processes for measuring and controlling credit risk throughout the company. The policy includes segregating credit approval authorities, establishing credit systems to rate and monitor counterparty exposure, and promptly reporting any non-approved credit exposures and credit losses. While each business unit manages its own credit risk, the treasury department holds company-wide credit risk authority and oversight for exposure to banks and financial institutions. This indicates that Petro Stopping Center has a structured approach to managing its credit risk exposure related to issued guarantees.