Substitutions and extensions of Letters of Credit - GMSLA Provision
2010 Global Master Securities Lending Agreement
Clause 5.9 in a Nutshell™
Full text of Clause 5.9
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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.
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.