Take Letters Of Credit As Collateral? Think Again!
April 8, 2008, 12:00 AM EDT
Law360, New York (April 8, 2008, 12:00 AM EDT) -- Taking a letter of credit as collateral from a borrower teetering on the edge of bankruptcy is considered one of the safest things for a lender to do. After all, the "independence principle" provides that a letter of credit and its proceeds are not part of the debtor's estate in a bankruptcy. Letter of credit drawings must be paid even if the borrower goes bankrupt.
Regardless, the lender may have to give up all proceeds from the letter of credit.
Financial Services Law360 UK and Insurance Law360 UK provide breaking news and in-depth analysis on U.K. and European Union regulation, enforcement, legislation, and litigation involving banks, investment firms, insurers, and more.