Special Types of Letters of Credit

Abstract

A description of each variant to the standard commercial letter of credit is provided, together with an explanation of their use and risk profile. The operation and credit limit requirements of revolving and reinstateable credits are compared. The structuring of the master and counter credit to mitigate risk in a back-to-back LC facility is explained and contrasted to transferable letters of credit. The special features of oil credits are highlighted, and the use of letters of indemnity and shipping guarantees when bills of lading are not available for presentation. Pre-shipment advances and drawings under red and green clause credits are described. The risk considerations of negotiating a non-bank issued LC are also considered. The operation and use of synthetic credits are introduced.