What is a Letter of Credit?
A letter of credit ("L/C") is a credit instrument, issued by a bank, guaranteeing payment on behalf of its customer to a beneficiary, normally to a third party but sometimes to the bank’s customer, for a stated period of time and when certain conditions are met. An HLB L/C substitutes the issuing bank’s credit for the credit of the HLB. HLB L/Cs are AAA-rated by Moody’s Investors Service and Standard & Poor’s — the leading providers of independent credit ratings. According to Moody’s Investors Service, AAA-rated is judged to be the best quality and carry the smallest degree of investment risk.
The HLB's L/C process:
The HLB issues two types of L/Cs: Irrevocable Standby or Irrevocable Direct Pay.
Irrevocable Standby L/C:
Provides that the HLB pay out to the beneficiary in the event of a member's default or failure to perform under a contract or other agreement between parties.
Irrevocable Direct Pay L/C:
Permits the beneficiary to look directly to the HLB for payment of a member’s obligation. It cannot be cancelled before a specific date without the agreement of all parties involved.
