I HAVE HERE A PIECE OF PAPER SIGNED BY . . .
A bank making a loan to a group company (S) may ask parent company (P) to guarantee the facility. But instead of receiving a guarantee--under which P simply agrees to pay the amount of any default by S--the bank may get a letter from P containing vaguely worded assurances to support S and keep it within the group over the life of the loan.
This is called a comfort letter. It stops short of being a guarantee but is meant to provide the bank with commercial comfort, on the basis that letting subsidiaries go bust is bad for group business. The assurances the letter contains may or may not be binding on P. The trick is in knowing the extent to which a comfort letter is worth the paper--usually just one page--it is written on. The trouble is that most countries have next to no law on comfort letters' enforceability.
Comfort letters vary from the weak to the strong. P may acknowledge that a loan is being made to S. It may confirm it owns S, confirm that it has no intention of selling S, agree to give the bank a guarantee of the loan if it does sell S, confirm its intention of maintaining its holding in S at a certain level, cause S to restrict its level of dividends, ensure S maintains its net worth at a given amount, undertake to provide sufficient financial support to enable S to fulfil its obligations (without specifying this one), provide sufficient capital to enable S to trade at its current level, or--stronger still-- ensure that S will meet its obligations to the bank.