Q&As

I am reviewing a loan which has a comfort letter supporting it. Does that mean the loan is guaranteed?

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Published on LexisPSL on 28/11/2013

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • I am reviewing a loan which has a comfort letter supporting it. Does that mean the loan is guaranteed?
  • Why are comfort letters used?
  • What do comfort letters usually say?
  • Comfort letters may not be binding
  • What is the point of a non-binding comfort letter?
  • Even if it is binding, it does not offer the same level of protection to lenders as a guarantee

I am reviewing a loan which has a comfort letter supporting it. Does that mean the loan is guaranteed?

In short, no, a comfort letter is not the same as a properly drafted guarantee.

Comfort letters are sometimes given as 'alternatives' to guarantees or performance bonds, but they do not offer lenders the same level of protection.

Why are comfort letters used?

Comfort letters are generally given by a parent company to its subsidiaries' lenders, intending to give 'comfort' to those lenders that the parent will continue to support each subsidiary in the context of a loan transaction by, for example, making sure that the subsidiary has funds available to make its interest payments under the loan. They may be used where the parent company is unable or unwilling to give a guarantee as a result of constitutional or contractual restrictions it is subject to or where the parent company has a policy limiting the amount of

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