Bring-down comfort letter: Overview, definition, and example
What is a bring-down comfort letter?
A bring-down comfort letter is a document provided by an auditor or accountant to confirm that the financial statements or other information disclosed in a prior report are still accurate and up-to-date as of a specific date. The letter is typically used in the context of securities offerings, mergers, or acquisitions. It "brings down" or updates the previous comfort letter by ensuring that there have been no significant changes in the financial situation of a company since the initial review.
Why is a bring-down comfort letter important?
A bring-down comfort letter is important because it provides assurance to investors, lenders, or other parties involved in a transaction that the financial statements or information they are relying on are still valid. It reduces the risk of misinformation and helps maintain confidence in the company’s financial health, especially in transactions like IPOs, mergers, or when obtaining financing. The letter ensures that the company’s financial position has not materially changed since the last financial statement was issued.
Understanding bring-down comfort letter through an example
Let’s say a company is preparing for an initial public offering (IPO) and has already provided its financial statements to potential investors. The company’s auditor may issue a comfort letter confirming that the financial statements are accurate as of a specific date. However, before the offering is finalized, the auditor might issue a bring-down comfort letter to confirm that no significant changes have occurred in the company’s financial position since the original letter was issued.
In another example, during a merger or acquisition, the acquiring company’s legal and financial teams may request a bring-down comfort letter to verify that the financial condition of the target company has remained consistent since the last set of financial statements. This provides confidence that no material adverse changes have occurred, which could affect the terms of the deal.
An example of a bring-down comfort letter clause
Here’s how a bring-down comfort letter might be referenced in a contract:
“The Company shall provide the Underwriters with a bring-down comfort letter from the Company’s independent auditors, in form and substance satisfactory to the Underwriters, confirming that the financial statements included in the Registration Statement are still accurate and have not been materially altered since the date of the last audit.”
Conclusion
A bring-down comfort letter is a critical tool in transactions that rely on financial statements or other key information. It helps ensure that the information remains current and accurate, providing reassurance to all parties involved in the deal. By confirming that no significant changes have occurred, it reduces the risk of relying on outdated or inaccurate data, which is crucial for maintaining trust and confidence in the transaction.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.