Letter of comfort
What is a letter of comfort, and is it a guarantee?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A letter of comfort is a statement of intention that stops short of a binding promise — a parent company saying it intends to support a subsidiary, or a bank saying it has no current intention of withdrawing a facility. Its value is exactly what its words say and no more, and courts in several countries have held that a letter of comfort is not a guarantee. A lender that needs a parent's support takes a guarantee; an auditor reading a bank's letter reads the dates and conditions in it, not its warmth.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WHAT IT IS NOT
A letter of comfort is not a guarantee: it records an intention, and a lender relying on one has nothing to enforce if the intention changes.
// WORKED IN
// NEXT TO IT
- Personal guarantee release
- General security agreement (GSA)
- Subordination
- Intercreditor agreement
- Loan to value ratio (LVR)
- Forced-sale value
- PPSR (Personal Property Securities Register)
- Retention of title
- Purchase money security interest (PMSI)
- Preferential creditors
- Cross-guarantee
- Floating charge
- Structural subordination
- Recovery waterfall
- First mortgage
- Pari passu
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