If all deals were consummated over a steaming bowl of macaroni and cheese, fried chicken or other comfort food, who
knows how shareholders might make out, but at least everyone would be happy in the moment. Comfort letters serve a
similar function. It's impossible to guarantee any deal, let alone an IPO, works long term, but you want as good a shot
as possible. And comfort letters, those pre-offering, due-diligence related auditor assessments procured by
underwriters to the effect that the company's financials are what they say they are, offer that shot. Of course, this
being law and finance, even comfort is a tough nut. So, you can run into all manner of difficulty getting your clients
the comfort letters they need.
Negotiating Comfort Letters, by Deanna L. Kirkpatrick (Davis Polk & Wardwell) is a kind of comfort food for comfort letters, meaning if you're unfamiliar with the letters' function, legal basis and structure, a good helping of this article will start to fill you up. You'll learn about Section 11 of the Securities Act, which imposes liability on underwriters when registration statements contain material misstatements of fact and establishes the "due diligence" defense to the liability. You'll also learn about Statement on Auditing Standards 72, which provides guidance on preparation of comfort letters. And you'll learn about the different levels of comfort an underwriter can receive and as to what parts of a company's financials as represented in the registration statement. Now as to negotiating the comfort letter, which after all, is the title of the article, that's up to you, and Kirkpatrick spends the final pages of her piece on that:
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