Substitutions and extensions of Letters of Credit - GMSLA Provision

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2010 Global Master Securities Lending Agreement
A Jolly Contrarian owner’s manual

Clause 5.9 in a Nutshell
Use at your own risk, campers!

5.9 Substitutions and extensions of Letters of Credit

(a) Substitution right: Lender may by notice to Borrower require Borrower to substitute other eligible Collateral for any Letter of Credit it has provided by way of Collateral on the third Business Day after that notice.
(b) Extension/replacement: Borrower must extend or replace any Letter of Credit it has provided by way of Collateral by 10.30 a.m. UK time on the second Business Day before such Letter of Credit expires.

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Clause 5.9 in full

5.9 Substitutions and extensions of Letters of Credit
Where Collateral is a Letter of Credit, Lender may by notice to Borrower require that Borrower, on the third Business Day following the date of delivery of such notice (or by such other time as the Parties may agree), substitute Collateral consisting of cash or other Collateral acceptable to Lender for the Letter of Credit. Prior to the expiration of any Letter of Credit supporting Borrower’s obligations hereunder, Borrower shall, no later than 10.30 a.m. UK time on the second Business Day prior to the date such Letter of Credit expires (or by such other time as the Parties may agree), obtain an extension of the expiration of such Letter of Credit or replace such Letter of Credit by providing Lender with a substitute Letter of Credit in an amount at least equal to the amount of the Letter of Credit for which it is substituted.
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Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Comparison: There is no equivalent clause to the 2010 GMSLA’s clause 5.9 in the 2018 Pledge GMSLA.

Resources and navigation

2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code
Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: Full wikitext · Nutshell wikitext | GMSLA Netting
Let me Google that for you: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
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2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex

Stock Loan owner’s manuals: GMSLA · Pledge GMSLA · OSLA

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Content and comparisons

The Letter of Credit concept — a painful, formalistic and old-fashioned one, truth be told — didn’t make it from the 2010 GMSLA into the 2018 Pledge GMSLA, the theory being that the Borrower is engaged in raising finance - in the shape of liquid assets with decent credit quality that it can give back to its Treasury department, against the collateral of its portfolio of equities, convertible bonds and other dross it holds as collateral for its own margin lending activity. so what it would be doing collateralising such a trade with a bank-issued Letter of Credit you’d really have to wonder.
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Summary

If you are tiresome enough to have supplied a Letter of Credit in support of your Loan, (a) the Lender can ask you to switch up to something more useful instead, and (b) you have to replace or extend an LC in plenty of time before it expires. This latter aspect an unnecessary ornamentation, because if you didn’t extend it, your required Collateral value would drop proportionately and you’d be in margin call anyway.
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See also

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References