Comfort letters

Comfort letters

This Overview is a guide to the Banking & Finance content within the Comfort letters subtopic, with links to the appropriate materials.

Comfort letters are generally issued by a parent or holding company giving 'comfort' to a lender about their support for a subsidiary in the context of a finance transaction. It is important for both lenders and comfort letter providers to understand the legal nature of a comfort letter and what rights it might create. Comfort letters are very different in nature to security or guarantees. They do not create rights over assets and, in most cases, they will not even be legally binding. If a comfort letter is legally binding, it will only create contractual rights.

When comfort letters are used

Comfort letters are often provided where the parent or holding company of the borrower is:

•
unable to give a guarantee due to prohibitions in its constitutional documents or negative pledges it has given to other lenders, or
•
unwilling to give a guarantee for commercial reasons or where company policy limits the amount of contingent liabilities that it can incur

Comfort letters should not be

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