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Post by loancapital on Dec 15, 2009 0:54:28 GMT 4
Assuming that there are acceptable assets backing a bank-issued letter of credit, what is the difference (to the issuing bank) between a direct pay letter of credit vs. a standby letter of credit?
What are the accounting ramifications to the bank - or to their capital ratios?
The reason I ask is in structuring the use of a DPLOC in a project funding deal and a SBLC won't work.
So, are banks willing to issue a DPLOC and what are the requirements?
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Post by miriammuraba on Dec 15, 2009 10:02:38 GMT 4
not sure if this helps, in our bank a DPLOC is a payment instrument, whereas a SBLC is considered a credit instrument. A payment booked different than a credit, the credit involves reserve requirements, which is not the case in a payment, at least not direct. The reason to use them in project finance can be multiple but I would see them different from each other. We issue DPLC's mostly for specific payments as a frame work, such as payment of specific amounts over several weeks for several different stages of the project. Whereas the sblc would be used to guarantee someone else payment, the dploc is the payment at a forward date. For the recipient it is easier to get a loan pre-financing the stages in the project, however the dploc is much more detailed and more work to draft in a real environment; sure you can issue for one single payment, did that when we were part of a syndicate on an M&A file, these are spedific files. Hope this helps.
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Post by Sapphire Capital on Dec 17, 2009 11:12:31 GMT 4
just a sample Attachments:
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Post by Sapphire Capital on Dec 19, 2009 2:49:22 GMT 4
I advise against mixing dploc and standby lc's because they consist of different risks, if you then mix them up in project finance you have high transaction costs all the way, which makes banks wary?
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