Use of comfort letters in financing transactions

A comfort letter is a written statement of support for a third party. Comfort letters may not be legally binding, however, even where there is a lack of a legal obligation, the provider of a comfort letter may still honor the arrangement for commercial reasons.

This guidance note explains the use of a comfort letter, including that it is quasi-security, and the many different names that such a document may bear. This guidance note contains examples where comfort letters are commonly used in financing transactions, and explains the reasons for their use. Importantly, this guidance note outlines for legal practitioners the typical terms of a comfort letter, and answer the often asked question of “is a comfort letter enforceable?”.

See The use of comfort letters in financing transactions.

Practical considerations relating to comfort letters

Comfort letters may be used as a guarantee alternative, but it is generally accepted that they do not provide the same certainty as a guarantee. This is because it may be arguable as to the nature of any rights that they create, and whether those rights are enforceable.

There is no one rule that determines whether a comfort letter is binding and can create legal obligations. It is therefore very important that legal practitioners draft, review and negotiate any comfort letter with care. This guidance note outlines the relevant matters that a legal practitioner should consider in practice when advising clients on comfort letters.

See Practical considerations relating to comfort letters.