In a lease or similar arrangement, the owner of an asset wants to know what it will be worth when the contract ends. A residual value guarantee is a promise, from the user of the asset or a third party, to make up the difference if the asset is worth less than an agreed amount at that point. If the asset is worth more, the guarantor usually owes nothing.
It shifts the risk of a fall in value from the owner to the guarantor and allows the owner to offer lower payments. Typical settings are equipment, vehicles, aircraft and data center or other real estate leases.
For the company providing it, the guarantee is a possible future payment. Under lease accounting, amounts that the company is probable to owe under such a guarantee are included in measuring the lease liability, and the arrangement is explained in the notes. Even if not recorded, it can be a large contingent exposure.
Read the lease and commitments notes to see the maximum amount guaranteed, the assets involved and when the guarantee could be called.