Take Letters Of Credit As Collateral? Think Again!

Law360 (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.[1] 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.

The Problem

The problem is that...
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