Generally, a commitment – made by a company or public body – under which the company or public body undertakes – that a borrowing subsidiary will meet its obligations under a loan – by standing in for it if necessary (a letter of comfort signed by the mother-company of the borrower. In this letter the parent-company indicates that it is fully aware of its subsidiary’s borrowing; and will do the necessary to procure that its subsidiary has the financial resources to reimburse the said borrowing). However, a letter of comfort does not constitute a legally-binding guarantee for the loan unless this is specifically stated. – In the language of the regulatory authorities, a declaration of intent by which someone undertakes to guarantee the fulfillment of the obligations of another. In Germany, such transactions fall under Section 1 of the German Banking Act (KWG) and therefore require a license. – See off-balance sheet transaction, accommodation, guarantee, bail-out, surety, guarantee transaction, accommodation obligation, loan commitment, irrevocable.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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