Letter Of Comfort

What is a 'Letter Of Comfort'

A letter of comfort is a letter issued to a lending institution by a parent company acknowledging support of a subsidiary company's attempt for financing. A letter of comfort does not imply that the parent company guarantees repayment of the loan being sought by the subsidiary company. It merely gives reassurance to the lending institution that the parent company is aware of the credit facility being sought by the subsidiary company, and supports its decision.

BREAKING DOWN 'Letter Of Comfort'

A letter of comfort is typically couched in vague wording, in order to prevent the parent company from being saddled with a legally enforceable obligation. As such, a letter of comfort creates a moral obligation for the parent company rather than a legal one. Companies generally do not furnish letters of comfort unless absolutely necessary. This is because in the worst-case scenario, where the subsidiary is unable to repay the debt, the parent company may either be on the hook for the full amount if the letter of comfort was poorly worded, or may have to incur expensive legal fees to prove that its letter of comfort was not a tacit guarantee of its subsidiary's loan.

RELATED TERMS
  1. Letter Of Moral Intent

    A letter to a bank from a parent company whose subsidiary is ...
  2. Comfort Letter

    A letter given to organizations or persons of interest by external ...
  3. Confirmed Letter Of Credit

    A second guarantee, in addition to a letter of credit, that commits ...
  4. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  5. Sight Letter Of Credit

    A letter of credit that is payable once it is presented along ...
  6. Parent Company

    A company that controls other companies by owning an influential ...
Related Articles
  1. Investing

    What's a Subsidiary?

    A subsidiary is a corporation owned 50% or more by another corporation. The owning corporation is usually called the parent or holding company. A company that is 100% owned and controlled by ...
  2. Economics

    What is a Wholly Owned Subsidiary?

    A company whose common stock is 100% owned by another company, called the parent company.
  3. Professionals

    7 Cover Letter Blunders

    When you're applying for a job, these mistakes will keep your true potential from showing through.
  4. Options & Futures

    Mergers and Acquisitions: Break Ups

    As mergers capture the imagination of many investors and companies, the idea of getting smaller might seem counterintuitive. But corporate break-ups, or de-mergers, can be very attractive options ...
  5. Personal Finance

    The Complete Guide To Job Searching: Cover Letters

    You have found a job that sounds ideal. You might have the exact skills that the employer is looking for, but unless you can broadcast your abilities, the employer may never know you are the ...
  6. Investing

    Letter of Credit

    A letter of credit is a document from a bank promising to pay the holder a certain amount if the holder fulfills certain obligations. Sellers in commercial transactions often require buyers to ...
  7. Retirement

    7 Essential Questions To Ask Aging Parents About Their Finances

    No one wants to think about the aging of his or her parents, let alone plan for their death. Unfortunately, aging is a part of life, and in order to truly support your parents, it's best to start ...
  8. Economics

    What is a Spinoff?

    Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary businesses as spinoffs.
  9. Financial Advisors

    Top Financial Planning Issues for Older Parents

    Clients who have children later in life present an opportunity for advisors. Here are the key the financial planning issues that need to be addressed.
  10. Investing

    How To Calculate Minority Interest

    Minority interest calculations require the use of minority shareholders’ percentage ownership of a subsidiary, after controlling interest is acquired.
RELATED FAQS
  1. When is it necessary to get a letter of credit?

    Capitalize on assets and negate risks by using a letter of credit. Letters of credit are often requested for buying, selling ... Read Answer >>
  2. What are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ... Read Answer >>
  3. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  4. Can entities other than banks issue letters of credit?

    Obtaining a letter of credit from a non-bank is legally acceptable according to the ICC, but companies tend to prefer to ... Read Answer >>
  5. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Answer >>
  6. When are you legally required to get a letter of credit?

    Learn how exporters or importers who deal in international trade use letters of credit to ensure that transactions are safe, ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center