A consolation letter – also known as a declaration of intent or a declaration of creditworthiness – is a written document that measures a certain degree that a bond is finally met. In its traditional context, a letter of consolation is sent to external organizations or persons of interest with respect to audits, statements and reports used in a prospectus. The consolation letter is attached to the opening statements in assurance that it will not be significantly different from the final version. As a general rule, a letter of consolation is only vaguely worded to avoid the creation of enforceable contractual terms.  Few nations regulate letters of consolation by law; Whether a consolation letter creates legally enforceable contractual clauses is often decided by the courts only on the basis of the text of the act.  Despite their non-binding status, comfort letters nevertheless offer a reduction in risk, as the parent company endangers its own reputation.  As a general rule, companies do not give birth to consolation letters unless strictly necessary. This is because, in the worst case scenario, the company may be financially late in the event of an unexpected situation. For example, if a subsidiary is unable to repay a debt, the parent company may be liable for the full amount if the consolation letter was poorly written, or it must pay an expensive legal fee to prove that its comfort letter was not an implicit guarantee of its subsidiary`s obligation to pay. In international contracts, comfort letters are frequently used to assure a party that a parent company makes available to its subsidiary the resources necessary to carry out the contract.  However, under international and European law, a letter of consolation does not require the parent company to comply with its subsidiary`s obligations.  When a consolation letter is used to support the actions of a subsidiary, it generally consists of three conditions: Although the consolation letter between the two parties is not binding, it may have binding provisions.
The consolation letter provides both parties with the opportunity to clearly define these binding provisions. A binding provision could, for example, stipulate that one party owes a sum of money to the other party if it decides to withdraw from the agreement. This amount could be the cost borne by the party that has not left the agreement. Comfort letters may also be issued to insurers as an obligation to conduct an “appropriate review” of securities offers. These convenience letters ensure that the reports are consistent with generally accepted accounting principles (GAAP). This will help the insurer better understand aspects of financial data that otherwise could not be reported, such as. B changes in financial statements and unaudited financial reports.