Letters of Credit: ISP98 Forms, UCC Article 5, UCP, Draw Procedures, and More

A letter of credit is an instrument in which a financial institution, at an applicant's request, agrees to honor a demand for payment made by a beneficiary. LCs are used in a variety of commercial transactions--including construction contracts, leases, and import-export transactions--to support an underlying obligation such as an obligation to pay a purchase price or assure the performance of a particular service.

There are two types of LCs--commercial and standby--both of which follow specific rules, forms, and procedures dictated by the UCC, ISP98 and/or UCP. Counsel must be able to draft and review LCs compliant with these rules and procedures and know the role of the applicant, issuer, and beneficiary in issuing and drawing upon LCs.

Counsel should also have an understanding of the different uses for LCs and how to tailor LCs to fit each transaction, including which rules apply to the LC, expiry dates and "evergreen" clauses, whether the LC should be transferable or not transferable, and whether single or multiple draws will be permitted.

Listen as our authoritative panel discusses negotiating and drafting the critical terms in LCs and provides guidance through the annotated ISP98 forms. The panel will highlight using LCs in commercial and financial transactions and issues that arise in making draws on LCs. The panel will also discuss alternative credit enhancements such as surety bonds and credit insurance and the advantages and disadvantages of each.