Term
Patronage liability
The patronage liability, also known as a letter of responsibility, is a means of security in the granting of credit to group companies. In the letter of responsibility, the holding company makes a commitment to the creditor to place their subsidiary company in a position to fulfil the obligations of the credit agreement. The content and scale of the patronage liability are not standardised and depend on the respective requirements. The letter of responsibility is submitted by the holding company in support of the subsidiary company, primarily to improve their creditworthiness.