What is a 'Letter Of Moral Intent'

A letter of moral intent is written to a bank from a parent company whose subsidiary is applying to borrow money from that bank. The purpose of the letter is to encourage the bank to lend money to the subsidiary. The letter is especially helpful in cases where the parent company is providing a significant amount of financial support to the subsidiary. While not legally binding, the letter indicates the parent company's intention to continue financially supporting its subsidiary (to not sell it or shut it down) in an attempt to reassure the lender that making the loan would not be an overly risky decision.

BREAKING DOWN 'Letter Of Moral Intent'

A letter of moral intent is written by a parent whose subsidiary is attempting to borrow money from a bank. The letter reassures the bank that the parent will continue to financially support the subsidiary during the course of the loan. While a letter of moral intent serves as reassurance to a bank that a parent company is on-side with a loan application, it does not serve as a formal guarantee by the parent for the subsidiary. This letter also shows that the parent company is aware of its subsidiary having requested the loan and approves.

Example of a Situation Requiring a Letter of Moral Intent

For example, XYZ Company is the parent of ABC Subsidiary. ABC Subsidiary's business has been struggling and XYZ Company has been providing a lot of financial support. ABC Subsidiary has decided that it would become a more competitive entity if it had more funding to develop its new product, so it applies for a loan. Since ABC Subsidiary's financials are not stable, XYZ Company sends a letter of moral intent to the bank stating that they intend to continue to financially support ABC Subsidiary.

RELATED TERMS
  1. Subsidiary

    A subsidiary is an independent company that is more than 50% ...
  2. Comfort Letter

    A comfort letter is a written document that provides a level ...
  3. Bank Confirmation Letter - BCL

    A bank confirmation letter is a letter confirming that a line ...
  4. Letter Of Credit

    A letter of credit is a letter from a bank guaranteeing that ...
  5. Synthetic Letter of Credit

    A synthetic letter of credit is a letter of credit that a bank ...
  6. Confirmed Letter of Credit

    A confirmed letter of credit is a letter of credit with a second ...
Related Articles
  1. Investing

    Are Hedge Fund Letters More Valuable Than 13Fs?

    13F filings can be a useful way to track hedge fund investment strategies, but sometimes it pays to go directly to the fund leaders themselves.
  2. Investing

    What is a Spinoff?

    Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary businesses as spinoffs.
  3. Small Business

    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 ...
  4. Retirement

    The Best Ways to Help Aging Parents With Finances

    The time may come when you need to help your parents organize their finances if they become unable to do so, and it is always better to be proactive.
  5. Managing Wealth

    How To Parent Your Aging Parents

    For sandwich generation, planning ahead is key to good elder care.
  6. Financial Advisor

    Your Advisor and Myths of International Investing

    Wall Street touts diversification and improving portfolios via investing in international equities. But do we know the whole story they're selling?
  7. Retirement

    Tips for Helping an Aging Parent

    Many Millennials and Gen Xers find themselves unexpectedly caring for their aging parents.
  8. Retirement

    Tips to Help Siblings Avoid a Costly Estate Battle

    Sibling spats may be financial or emotional. Either way, here are steps parents can take to forestall conflicts and strategies for children if they don’t.
RELATED FAQS
  1. What is the difference between a subsidiary and a wholly owned subsidiary?

    Understand the primary differences between a subsidiary company and a wholly owned subsidiary, and their relationship to ... Read Answer >>
  2. 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 >>
  3. How legally binding is a letter of intent?

    Find out when a letter of intent (LOI) is binding and non-binding. Understand the role of drafting language, and when an ... Read Answer >>
  4. What is the difference between a letter of intent and a memorandum of understanding?

    Understand what a letter of intent and a memorandum of understanding are, and learn the primary difference between the two ... Read Answer >>
  5. What is the difference between moral hazard and morale hazard?

    Insurance industry terms, morale hazard and moral hazard - know the difference. Read this article on Investopedia. Read Answer >>
Trading Center