Irrevocable Letter of Credit
A letter of credit is a contract between the Forest Service and an issuing bank or other financial institution based on a third party agreement between the principal and the institution. The Forest Service is not a party to this third party agreement. Letters of credit are similar to cash deposits in that the Forest Service may draw cash from the issuing institution up to the amount stated in the letter of credit.
1) Eligible Issuing Institutions. Only a letter of credit that is issued by a federally insured financial institution such as a Production Credit Association or insured by the Federal Deposit Insurance Corporation (FDIC), Federal Savings and Loan Insurance Corporation (FSLI) or National Credit Union Association (NCUA) will be accepted.
2) Letter of Credit Contents. A letter of credit must include all of the following:
a) Letter of credit number (assigned by the issuer).
b) A statement that the letter of credit is irrevocable.
c) Name and address of issuing institution unless included in the letterhead.
d) The legal name of the principal which must be identical to the name on the special use authorization or collection agreement.
e) The maximum credit limit, which must equal or exceed the penal sum of the bond.
f) A statement that the letter of credit secures the performance or payment on a special use authorization or collection agreement with the number and name of the same.
g) An authorization to draw sight drafts on the issuing institution in favor of the USDA Forest Service. It may be possible to receive monies through wire transfer in lieu of a physical demand. If so, this must be stated in the letter of credit.
h) Location(s) where the Forest Service may present sight drafts and a statement that the letter of credit number appearing on the sight draft is sufficient identification to honor the letter of credit.
i) An unqualified expiration date for presentation of sight drafts for payment that is equal to the term of the bonded activity plus sufficient time to meet the specific performance required and to determine any damages and receipt of any funds due the Government.
j) A corporate seal.
k) The following statement: “The deposits of (Name of financial institution) are insured by the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, or National Credit Union Association.”
l) Signature line for person authorized to sign on behalf of the issuing institution and that person’s title.