In leveraged buyouts (LBOs) by private equity firms, a letter agreement entered into between the private equity fund and the acquisition vehicle formed to finance the acquisition of a portfolio company. In the equity commitment letter, the fund commits to the acquisition vehicle that it will invest equity in the vehicle at the closing of the transaction. The equity commitment letter is usually delivered (along with the debt commitment letter) to the seller (in a stock or asset sale) or target company (in a merger) when the acquisition agreement is executed to serve as evidence that the acquisition vehicle has sufficient funds to make the acquisition.

For more on LBOs and equity commitment letters, see Practice Note, Buyouts: Overview and Standard Document, Equity Commitment Letter.