What is a Highly Confident Letter and How Does It Work

A Highly Confident Letter is a type of letter that is used to express strong opinions and confidence in a particular matter. It's often used in business and professional settings to make a persuasive case.

The main goal of a Highly Confident Letter is to convince the reader of the writer's point of view, and it typically includes specific examples and evidence to support the claims made. This type of letter is usually formal in tone and language.

A Highly Confident Letter is not about being aggressive or confrontational, but rather about being assertive and confident in one's opinions and ideas. It's about presenting a clear and compelling case that is backed up by facts and evidence.

Check this out: Feel Confident

A highly confident letter is a financing tool used in leveraged buyout offers, where the investment banker promises to be able to raise the required debt in time to fulfill the obligations of the corporate raider.

Readers also liked: I M B Bank Share Price Today

The highly confident letter has no legal status, but its author, Drexel Burnham Lambert, had a reputation for being able to make markets for any bonds it sold, making its promise widely accepted as given in the markets during the 1980s.

The letter was first used in 1983 for Carl Icahn's attempt to take ownership of Phillips 66, and was considered a valuable tool in future deals.

In essence, the highly confident letter promised that the investment banker could raise the required debt, even if it hadn't actually been secured.

The letter was often used in conjunction with junk bonds, which were considered below investment grade paper.

Here are some key characteristics of a highly confident letter:

Drexel's reputation for being able to make markets for any bonds it sold made its promise widely accepted, and the highly confident letter was considered a valuable tool in future deals.

The highly confident letter was used on several occasions over the years, including in 2004 for a Rule 144A Offering, where a copy of the letter was attached as Schedule 4.02(f).

Here's an interesting read: Highly Liquid Etfs

The highly confident letter was a financing tool created by investment bankers at Drexel Burnham Lambert in the 1980s. It was used to enable corporate raiders to launch leveraged buyout offers without the debt component of their financing package fully in place.

This letter was first crafted in 1983 for Carl Icahn's attempt to take ownership of Phillips 66. Drexel wrote a letter advising banks that it was "highly confident" that it would be able to raise the required debt in time to fulfill Icahn's obligations.

Drexel's reputation for being able to make markets for any bonds it sold made this letter extremely effective. It was considered as good as cash for corporate raiders in the 1980s, and was used on several more occasions over the years.

For more insights, see: Corporate Valuation Methods

Highly confident letters can be effective in hostile takeover situations, even if all financing mechanisms haven't been fully arranged.

They can reassure nervous investors and persuade them that a deal can be completed, giving the acquirer an edge in a bidding war.

However, if financing is yet to be arranged, it often signals a red flag to the markets and requires further investigation.

This is because merger arbitrageurs and traders analyze financing as a key point when trying to identify the deal closing probability (DCP) of a takeover.

A lack of arranged financing can delay the deal closing and widen the merger arbitragespread, making it riskier for traders to initiate a position.

A Highly Confident Letter is a document that outlines the terms and conditions of financing for a transaction. It's essentially a promise from the underwriter or a nationally recognized financial institution that they are highly confident in their ability to secure the necessary funding.

The Purchaser has no reason to believe that it won't be able to complete the Financing on the terms and conditions outlined in the Highly Confident Letter. This is a key point to note, as it shows that the Purchaser is confident in their ability to secure financing.

Consider reading: How to Be Confident with Acne?

A true and correct copy of the Highly Confident Letter is often attached to the main document as a Schedule. This is done to provide evidence of the letter's existence and contents.

The Highly Confident Letter is valid and in full force and effect, meaning it's still a binding agreement. This is important to note, as it shows that the letter is still a valid commitment from the underwriter or financial institution.

The Purchaser shall notify the Seller and the Parent immediately if any of the Highly Confident Letter and the Commitment Letters are modified in any material respect or terminated. This is a critical step in ensuring that all parties are aware of any changes or cancellations.

Here are some key points to remember about Highly Confident Letters: