Comfort Letters as a Tool for Crisis Prevention

A properly drafted letter of support (also known as a “comfort letter” (Patronatserklärung)) enables a parent company (the “patron”) to prevent its subsidiary or other affiliated group company from becoming over-indebted or illiquid. By strengthening the financial position of the beneficiary company, such letters also provide creditors with additional security. Comfort letters are therefore a widely used instrument in group financing arrangements.