Download the Presentation - Silicon Valley Bank

Letters of Credits Tools to Mitigate Risk,
Expand Your Market and Satisfy
Performance Requirement
May 15, 2013

Speakers
Dennis Brown
Senior Advisor
Silicon Valley Bank
Jimmy Gan
Senior Director and Business Manager
Silicon Valley Bank
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Agenda
Letter of Credit: Definition
Standby Letters of Credit
Commercial Letters of Credit
Case Studies
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Poll Question
Have you experienced using a letter of credit before?
A. Yes
B. No
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Letter of Credit Definition
Uniform Commercial Code (UCC) Definition:
“Letter of Credit" means a definite undertaking that satisfies the
requirements by an issuer to a beneficiary at the request or for the
account of an applicant or, in the case of a financial institution, to
itself or for its own account, to honor a documentary presentation
by payment or delivery of an item of value.
(The issuing party substitutes its credit for that of the applicant)
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Understanding Your Role in a Letter of Credit
Transaction
Applicant
Buyer
Importer
Tenant
Bidder
Borrower Beneficiary
Seller
Exporter
Landlord
Auctioneer
Lender
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Parties to a Letter of Credit - Domestic
Applicant
Issuing Bank
y
Beneficiary
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Parties to a Letter of Credit - International
Applicant
Issuing Bank
y
Beneficiary
Advising Bank
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Types of Letter of Credit
Irrevocable Or Revocable
Standby Letters of Credit
Commercial Letters of
Credit
Financial Letters of
Credit
Performance Letters of
Credit
Import Letters of Credit
Export Letters of Credit
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Standby Letters of Credit

Standby Letters of Credit - Overview
Not a primary source of payment
Not meant to be drawn upon
Support an obligation
Financial
Performance
Subject to either ISP98 or UCP600
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Purpose of Standby LCs
Domestic
Rent or lease obligations
International
Customs bonds
Bid
Performance
Advance payment
Warranty
Workman’s Comp
Commercial paper
Securitizing assets/credit
enhancement
Credit support / loans
Acquisitions
VAT (Value-Added-Tax) bond
Rent or lease obligations
Bid
Performance (project of financial)
Advance Payment
Tax liabilities
Warranty
Credit support / loans
Acquisitions
Environmental liabilities
Environmental liabilities
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Standby L/Cs – Typical Required Documents
Draft drawn on issuing bank
Signed statement from the beneficiary certifying one or more
conditions specified below:
Applicant has failed to perform its obligations under the lease agreement
dated XXX.
Applicant has failed to pay invoices within 30 days and are now past due.
Applicant has not complied with the terms and conditions of contract no.
XXXX.
Applicant has been awarded the bid but has failed to sign the contract or
has failed to provide the required performance bond.
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Benefits of Standby Letter of Credit
Allows clients to fulfill contractual and governmental obligations
Acceptable substitute for bid, performance bonds and warranty
bonds
Serves and supports a bank guarantee
Applicable for domestic and international transactions
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Commercial Letters of Credit

Important Factors to Consider
Cost
Incoterms
Payment terms
Risk
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Incoterms 2010
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Incoterms 2010
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Payment Terms
Sight
Instrument payable upon presentation or demand
Extended Payment Terms
Deferred
Enables the buyer to take possession of the title documents and the goods by agreeing
to pay the issuing bank at a fixed time in the future
Usance or Time Draft
Payment available against acceptance of a
term bill of exchange or in certain usages
by deferred payment
Mix Payment
Any combination of sight and/or extended
payment terms
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Payment Risk Hierarchy
Low
Cash
Advance
High
Seller / Exporter
Letters of
Credit
Documentary
Collections
Buyer / Importer
High
Open Account
Low
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Cash in Advance Process
Negotiate Sale
1
2
Buyer
3
Send Title Documents
Seller
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Open Account Process
Negotiate Sale
3
1
Buyer
2
Send Title Documents
Seller
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Documentary Collection Process
Negotiate Sale
Buyer
Seller
1
Send Payment
5
4
6
2
8
Send Payment
3
Presenting/
Collecting Bank
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Send Payment
Remitting Bank
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Letter of Credit Issuance Process
Buyer
Seller
Issuing Bank
Advising/Confirming
Bank
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Letter of Credit Settlement Process
Buyer
Seller
Send Payment
Send Payment
Issuing Bank
Send Payment
Advising/Confirming/
Negotiating Bank
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Commercial Letters of Credit - Overview
Primary payment instrument
Involves goods or services
including licensing rights
(media/software)
Domestic or International
Subject to UCP600
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Typical Required Documents of Commercial
Letters of Credit
Draft drawn on issuing bank
Signed commercial invoice
Packing List
Transport document
Ocean Bills of Lading
Airway Bills
Courier Receipt
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Letter of Credit Characteristics
A Letter of Credit by its nature is a separate transaction from the
sale or other contract on which it may be based
Banks deal with documents and not with goods, services or
performance to which the documents may relate
Adheres to independence principles
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Export Letters of Credit
SVB client functions as the Beneficiary
Sight or Extended Term (30 days, 60 days, 90 days etc.)
Payments for goods or services
Domestic or International
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Import Letters of Credit
SVB client functions as the Applicant
Sight or Extended Terms (30 days, 60 days, 90 days etc.)
Payment for goods or services
Domestic or International
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Benefits of Export Letters of Credit
Excellent cash forecasting instrument
Exporter controls payment
Risk-mitigation tool
Substitute buyer risk with foreign bank risk
Irrevocable
Non-cancellable unless all parties agrees
Financing Vehicle
Discounting of accepted draft
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Benefits of Import Letters of Credit
Applicant has control on conditions of payment
Applicant dictates documentary requirements and conditions on the letter of
credit
Risk-mitigation tool
Bank pays only upon submission of complying documents
Keeps the supply chain healthy
Assurance that shipments have occurred as evidenced on the documents
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Case Studies

Case Study 1
Background: International Private Equity had a deal to purchase a
division of a large Chinese company. The seller wanted the buyer
to set up an escrow account for the full purchase price of $ 200
million.
Need: The CFO of International Private Equity wanted to manage
cash carefully and only disburse funds at closing.
Concern: The seller needed some assurance that the buyer was
serious about the purchase.
Solution: International Private Equity requested SVB to provide the
seller a Standby Letter of Credit for $50 million to assure buyer that
they are serious about the purchase.
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Case Study 2
Background: Amazingly.com has expanded operations and is looking
for office space in Australia to house about 50 new employees.
Need: Landlord requires the tenant to provide security in the form of
either cash or a bank guarantee from a local Australian bank.
Concern: The CFO wants some assurance that they can get their
deposit back when no longer needed. He also does not want to deal
with a foreign entity to retrieve the security deposit.
Solution: Amazingly.com provides the landlord with a bank guarantee
backed by Silicon Valley Bank’s Standby Letter of Credit to satisfy the
landlord and at the same time provide satisfaction to the CFO that he
can get his cash back when the Standby Letter of Credit expires.
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Case Study 3
Background: Nicely Tailored.com sells high-end dresses on line.
The CFO wanted open term arrangements while the suppliers
required pre-payment.
Need: The CFO wanted to manage cash and mitigate delivery
risks. He needed a solution that will assure the supplier payment
protection.
Solution: The CFO requested Silicon Valley Bank to issue an Import
Commercial Letter of Credit as form of payment for products
shipped
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Case Study 4
Background: Screenwaver has a subsidiary in China with a
buy/sell operation. They are completely committed to supporting
the subsidiary.
Need: The subsidiary needed about $ 1 million in working capital to
support their operations.
Concern: Strict exchange controls in China may prevent the CFO
from repatriating their USD back if sent over to the subsidiary.
Solution: SVB issued a Standby Letter of Credit on behalf of
Screenwaver in favor of Shanghai Pudong Development Bank to
support an RMB credit facility for the subsidiary to pay for bills and
payroll. Screensaver is able to keep the USD in the US.
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Case Study 5
Background: Alpine Semiconductor sells analog chips globally.
They have a few clients that don’t carry the credit profile to warrant
open account terms.
Need: Alpine Semiconductor needs to mitigate their buyers
payment risks.
Issue: Some buyers are pushing back on pre-payment terms that
Alpine Semiconductor has been requiring.
Solution: Alpine Semiconductor required their buyers to issue
Export Commercial Letters of Credit in their favor through Silicon
Valley Bank.
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Case Study 6
Background: Super Software has an interest in bidding on a project
in Qatar to provide mobile banking solutions.
Need: Super Software needs to provide a bid security in the form
of cash, cashiers check or bank guarantee in local currency to the
Qatar customer.
Issue: CEO would like to avoid dealing with currency risk and
fluctuations on having to convert it back to USD.
Solution: Super Software requested Silicon Valley Bank to issue a
Standby Letter of Credit to a correspondent bank in Qatar to
support the bank guarantee that will act as bid security.
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Summary
Definition of a letter of credit
Types of letters of credit
Understanding your role in the transaction
Look for terms such as “bonds”, “bank guarantees”, “VAT-taxes”,
“customer”, “vendor”, “supplier”
Reach out to your Product Advisor
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Questions?

Biographies

Dennis Brown
Dennis Brown functions as a Senior Trade Finance Advisor in the
International Group responsible for providing guidance and delivering tools
to clients as they venture into cross-border markets.
Brown joined Silicon Valley Bank in 2010. He has experience in both trade
operations and business development from the beginning of his banking
career in 1981 as an export letter of credit analyst. He later cross-trained to
other international functions including import letters of credit, standby letters
of credit, and bankers acceptances. In 1997, Brown settled to a business
development role and has since remained in this field.
Dennis Brown , Senior Trade
Finance Advisor, Silicon Valley
Bank
dbrown@svb.com
949.754.0838
Brown obtained a Bachelors of Science from the University of San
Francisco. He resides in Cypress, CA but makes the Bay Area his second
home.
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Jimmy Gan
Jimmy Gan, Senior Director and Business Manager, is responsible for the
Global Trade Finance Division at Silicon Valley Bank.
With 39 years of Trade Finance experience, he heads a team of highly
qualified professionals committed to providing business active in global trade
markets with a value-added service offering.
Jimmy Gan, Senior Director and
Business Manager, Silicon Valley
Bank
jgan@svb.com
408.654.7110
Gan joined Silicon Valley Bank in 1997. During various mergers, acquisitions
and alliances among Wells Fargo, HSBC Trade Bank N.A, Standard
Chartered Bank, First Interstate Bank of California and United California
Bank, he spent 16 years as a Vice President in their Trade Finance groups.
He started his trade banking career at China Banking Corporation, Manila,
Philippines.
Gan obtained a Bachelors of Science Degree in Industrial Management
Engineering with a minor in Mechanical Engineering from De La Salle
University, Manila, Philippines.
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Contacts

Silicon Valley Bank - Letter of Credit Team
Managers
Jimmy Gan
Sr. Director / Bus Mgr Gbl Trade
Tel. no. 408-654-7110
Email: jgan@svb.com
Alice Daluz
Market Manager
Tel. no. 408-654-7120
Email: adaluz@svb.com
John Dossantos
Trade Finance Manager
Tel. no. 408-654-6274
Email: jdossant@svb.com
Ravi Kiran Goli
Trade Finance Manager
Tel. no. 408-654-7777
Email: gkiran@svb.com
Standby Letter Credit
Sivaram Eswaran
Tel. no. 408-654-5545
Email: seswaran@svb.com
Enrico Nicolas
Tel. no. 408-654-7127
Email: enicolas@svb.com
Linda Wu
Tel. no. 408-654-7716
Email: lwu@svb.com
Evelio Barairo
Tel. no. 408-654-3035
Email: ebarairo@svb.com
Advisors
Commercial Letter of Credit
Ray Robles –
Advising/Amendment
Tel. no. 408-654-5083
Email: rrobles@svb.com
Margaret Wong-Document
Examination
Tel. no. 408-654-7788
Email: mwong@svb.com
Jing Yu – Document Examination
Tel. no. 408-654-7176
Email: jyu@svb.com
Edmund Juri – Document
Examination
Tel. no. 408-654-5079
Email: ejuri@svb.com
Cesar Agoncillo
Tel. no. 408-654-7268
Email: cagoncillo@svb.com
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SVB – Product Advisory Team
Senior Advisors
Ed Sauve
esauve@svb.com
949-754-0816
Carla Winfield
cwinfield@svb.com
617-630-4154
Associates
Justine Nguyen
jbguyen@svb.com
949-754-0821
Tim Ferris
tferris@svb.com
617-630-4198
Dennis Brown
dbrown@svb.com
949-754-0838
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Disclaimers
This material, including without limitation the statistical information herein, is provided for
informational purposes only. The material is based in part upon information from thirdparty
sources that we believe to be reliable, but which has not been independently
verified by us and, as such, we do not represent that the information is accurate or
complete. The information should not be viewed as tax, investment, legal or other advice
nor is it to be relied on in making an investment or other decision. You should obtain
relevant and specific professional advice before making any investment decision.
Nothing relating to the material should be construed as a solicitation or offer, or
recommendation, to acquire or dispose of any investment or to engage in any other
transaction.
©2013 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of
FDIC and Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and
Silicon Valley Bank are registered trademark.
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