Documentary letter of credit meaning

This glossary sets out many of the expressions commonly used in the leveraged finance market. Words appearing in the definitions in bold are defined elsewhere in this glossary. For further banking terminology, please refer to the main Banking & Finance Glossary... Acquisition finance glossary—A Acceleration Acceleration is the formal action taken by the agent, on the instructions of the majority lenders, following an event of default, such as making a demand for early repayment of the loan. See Practice Note: Accelerating a loan for more information... Accordion feature/accordion facility An accordion, also called an incremental debt feature, is a mechanism in the facilities agreement that, provided specified conditions are satisfied (for example, pro forma compliance with a leverage test), permits those lenders under the facilities agreement who wish to do so to advance additional debt. The terms for that extra debt are typically captured in an increase notice. This accordion or incremental debt flexibility is different from structural adjustment, which usually requires the majority consent...

Commercial letters of credit Commercial letters of credit (sometimes called traditional letters of credit or L/Cs) are used to facilitate the movement of goods in both international and domestic trade. They are commonly adopted as the method of payment under contracts of sale, especially where a seller is concerned about a buyer’s creditworthiness or the legal framework of the buyer’s jurisdiction. They are also referred to as documentary letters of credit or documentary credits. By comparison, standby letters of credit form a distinct type and serve a different role. They are applied in similar situations to on demand guarantees or performance bonds, providing a mechanism to secure payment or other obligations. They operate as a form of quasi-security. For information on standby letters of credit, see Practice Note: Characteristics of standby letters of credit and Q&A: What is the difference between a standby letter of credit and a letter of credit?...

The International Chamber of Commerce (ICC) has created widely used rules and guidance to govern letters of credit and related practice. The principal publications for commercial letters of credit are: the Uniform Customs and Practice (UCP) for Documentary Credits, which incorporates the Supplement to UCP for Electronic Presentation (the eUCP) the International Standard Banking Practice for the Examination of Documents under Documentary Credits These works set out the general framework for documentary credits. For more information on commercial letters of credit in general, please see Practice Notes: Characteristics of commercial letters of credit Types of commercial letters of credit Commercial letters of credit—structure and parties The nature of the Uniform Customs and Practice for Documentary Credits The UCP comprises standard terms and conditions that parties may choose to incorporate into a letter of credit, by agreement between the parties concerned. Although it lacks the force of law, it is recognised internationally. Incorporating...

Conditions precedent satisfaction letter-lender to borrower This precedent conditions precedent satisfaction letter is designed for use by a lender under a bilateral facility, under which the lender must state in writing to the borrower when every documentary condition precedent to lending has been fulfilled, or alternatively, has been waived. In this conditions precedent satisfaction letter, the lender’s confirmation to the borrower regarding the documentary conditions precedent is grounded in a written confirmation supplied by the lender’s legal advisers, and that legal advisers’ confirmation should be included with the letter as an appendix. See Precedent: Ireland-Conditions precedent satisfaction letter: for a bilateral facility agreement-lender’s lawyer to lender. That approach represents the usual procedure. Addressee of letter The conditions precedent satisfaction letter assumes the lender is to confirm satisfaction of the documentary conditions precedent directly to the borrower. That is the standard position; however, it may differ where there is more than one borrower, or where other obligors participate in the facility. You should review the terms of your...

1 Payment by letter of credit 1.1 Within [ insert figure, eg 21 ] days, the Buyer shall establish an irrevocable letter of credit with [ insert name of issuing bank ], confirmed by [ insert name of secondary bank ], in favour of [ insert legal name of seller's bank ], payable at sight upon presentation of: 1.1.1 a signed commercial invoice for the Goods; 1.1.2 [ a clean on board bill of lading for the Goods OR [ insert details of transport document or airway bill ] ]; 1.1.3 [ an inspection certification; ] 1.1.4 [ a packing list for the Goods; ] 1.1.5 an insurance certificate [ insert details eg all risks ]; 1.1.6 [ an export licence for the Goods; ] 1.1.7 [ [ insert details of other documents or certificates that must be produced ]. ] ...