Comfort letters


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert
Practice notes

Comfort letters


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert

Practice notes
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Comfort letters are encountered in finance transactions relatively often. They take different forms and it is important from both the lender's perspective and the comfort letter provider’s perspective to understand their legal effect.

Use of comfort letters in finance transactions

Comfort letters are often used in finance transactions where the lender is not able to obtain a guarantee. (For information on guarantees, see: Guarantees—overview.)

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.

Comfort letters can vary widely in their effect and it is important for the parties to be clear at the outset what kind of letter is being issued and whether it is intended to be legally binding upon the provider or not. Comfort letters are generally not legally binding. It is rare to come across a comfort letter that is intended to be legally binding.

Non-legally binding comfort letters

A non-legally binding comfort letter will typically:

  1. •

    refer to the finance arrangements being made available

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Jurisdiction(s):
United Kingdom
Key definition:
Holding company definition
What does Holding company mean?

Defined in section 1159 of the Companies Act 2006 as a company holding a majority of the voting rights in another subsidiary company or having the right to appoint or remove a majority of the subsidiary company’s board of directors.

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