How Comforting Is A Comfort Letter?

Article by Shawn Goldmintz*

Introduction

It can be very hard for a prospective borrower to attain financing without a guarantee, especially when that borrower has affiliates that would logically be in a position to guarantee the borrower's indebtedness (e.g. a parent corporation). While it is well within an affiliate's rights to choose not to guarantee a debt, it puts the prospective debtor in a very tough situation. As a compromise, an affiliate of the borrower can give some kind of assurance to a creditor that falls short of a guarantee. This assurance often takes the form of a comfort letter, which is a statement made by the affiliate indicating their intention to ensure that a debt will be repaid.