Forgot your password?
Please enter your email & we will send your password to you:
My Account:
A news story from a rural community in Canada suggesting that “many municipalities are moving away from letters of credit” and instead relying on bonds to backstop land development projects flies in the face of what’s typically seen throughout the country.
The Carillon reported that the Municipal Council of Tache (Manitoba, Canada) granted use of a bond for a housing and commercial development project, even as the municipality believes it is “one of the rare few” that still requires development guarantees to be in the form of an LC. In fact, bond use is the exception and LCs are the norm nationwide.
“We still have many standby LCs in favour of municipalities across Canada, with standbys and URDG (guarantees) used in Québec and standby LCs used in the rest of Canada”, one Canadian banker familiar with the market told DCW. “Municipalities are creations of (Canadian) provinces and certain municipalities are more active than others in terms of LC use. It can vary quite a bit from one municipality to another (with imposed templates, UCP 600 vs ISP98, usage, bylaws) across provinces. While bonds are not without their reasons or merits, I’m not sure what specific benefit they are trying to gain from the use of bonds.”
Use of standbys among municipalities is not immune from hazards. At times, mandatory text is poorly drafted, there is insistence on an inadequate set of ICC practice rules (or no rules at all), or there is a lack of expertise working with standbys within municipal governments, exacerbated for instance by employee turnover. Nonetheless, standbys are more commonly used than bonds. Said the banker: “Some large municipalities are regular beneficiaries of standby LCs for a variety of reasons and, if anything, I hear less talk of bonds than a decade ago and more talk of letters of guarantee or standby LCs.”