Comfort Letters
A comfort letter is a document that provides assurance about a party's financial ability or a company's financial status, without being a legally binding guarantee. They are used in various financial and commercial contexts, such as an auditor's letter reassuring investors about a company's financial statements, or a bank's letter confirming a buyer's financial capacity to a supplier.
Types of comfort letters
In a securities offering, an auditor provides this to underwriters or investors. It confirms the accuracy of financial information in a registration statement and may detail procedures performed to support these assurances.
Bank comfort letter (BCL):
Issued by a bank to reassure a supplier or lender that their client has the financial capability to fulfill an agreement or loan.
Parent company comfort letter:
A parent company can issue this on behalf of a subsidiary, assuring a lender that it is aware of the subsidiary's obligations and intends to support its financial policies, even if it cannot provide a formal guarantee.
