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

Drafting Commercial vs. Standby, Conditional vs. Unconditional, Limited Term vs. "Evergreen" and Transfer Provisions

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, April 20, 2017

Recorded event now available

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Program Materials

This CLE webinar will prepare counsel to draft and review commercial and standby letters of credit (LC) which comply with Article 5 of the UCC, as well as rules of practice, including International Standby Practices 1998 (ISP98) and Uniform Customs and Practice for Documentary Credits (UCP). The panel will discuss standard LC forms currently used by the banking industry (including forms now available for LCs issued subject to ISP98), the various transactions in which LCs are used, procedures for issuance and drawing upon LCs, and key provisions to consider in tailoring an LC to fit your transaction.

Description

At its most basic, an LC is an instrument in which 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 performance of a particular service.

There are two types of LCs—commercial and standby—both of which follow certain 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 LCs can be best tailored to fit each transaction, including to which rules the LC should be subject, expiry dates and “evergreen” clauses, whether the LC could be transferable or not transferable, and whether single or multiple draws will be permitted.

Listen as our authoritative panel discusses negotiating and drafting of the key terms in LOCs and provides guidance through the annotated ISP98 forms. The panel will highlight how LOCs are used in commercial and financial transactions, and issues which can arise in making draws on LOCs. The panel will also discuss alternative credit enhancements such as surety bonds and default insurance, and the advantages and disadvantages of each.

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Outline

  1. LOC rules and definitions
    1. UCC Article 5
    2. International Standby Practices 1998 (ISP98)
    3. Uniform Customs and Practice for Documentary Credits (UCP)
    4. Standard forms
  2. Collateral and other bank requirements for issuance
  3. Types of LOCs—commercial vs. standby
  4. Deal-specific concerns
    1. Conditional vs. unconditional
    2. Limited (typically one year) term vs. evergreen
    3. Transferabilty
  5. Draw procedures
  6. Bankruptcy considerations
  7. Alternative credit enhancements

Benefits

The panel will review these and other key issues:

  • What essential components should counsel include when structuring and drafting LCs?
  • What UCC requirements should counsel be cognizant of in drafting LCs?
  • What common issues arise in LC practice and how should those issues be handled?
  • What are the potential pitfalls in choosing ISP vs. UCP, and how can counsel address these issues?

Faculty

Jacob A. Manning
Jacob A. Manning

Partner
Dinsmore & Shohl

Mr. Manning advises businesses and individuals in a variety of business transactions, both domestic and...  |  Read More

Jonathan J. Dunn
Jonathan J. Dunn

Atty
SMTD Law

Mr. Dunn concentrates his practice in construction law, government and public contracts, creditor’s rights and...  |  Read More

Walter (Buddy) Baker
Walter (Buddy) Baker
Vice President, Investment Banking Division
Goldman Sachs & Co.

Mr. Baker has over 30 years of experience in international trade finance. He authored numerous articles...  |  Read More

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