Standby Letters of Credit from FHLB Dallas are rated AA+ and AAA by Moody's and Standard & Poor's, respectively. Terms range from overnight up to 15 years. LOCs will not be issued in terms exceeding 15 years. The issued LOC will remain in effect until the stated expiration date, unless all parties including the beneficiary agree in writing to an earlier expiration date.
To apply, members should execute either a Standby Letter of Credit Application or a Custodial Letter of Credit Application, and a Security Agreement, outlining the terms and conditions of FHLB Dallas' issuance of LOCs. A separate application that identifies the beneficiary and purpose of the LOC, and other information required by the Bank must be submitted for each LOC issued by FHLB Dallas.
At a member's request, FHLB Dallas may issue LOCs that are automatically extended for a specific term. For LOCs not automatically renewed, a member may request a new LOC at maturity.
Fluctuating Balance Letter of Credit Option
Standby and Custodial Letters of Credit, issued for the benefit of a single public unit depositor in an amount of $25 million or greater, may be issued by FHLB Dallas using the fluctuating balance option. This option allows the member to be charged a fee based on the average daily collateral utilization of the aggregate deposits of the Beneficiary that are collateralized by the Letter of Credit during the preceding quarter. Fees are debited from the member's main deposit account on the fifth business day following the end of the quarter. Members are required to submit a certification to FHLB Dallas no later than the third business day following the end of the quarter providing the average daily balance amount.
All Letters of Credit issued by the Bank will be secured by the pledge of, and creation of a security interest in, collateral as provided for in the Bank's current Member Products & Credit Policy. The principal amount of the Letter of Credit/Confirmation will be added to the members' outstanding advances for the purposes of calculating collateral requirements.
Generally, FHLB Dallas does not anticipate that a Standby Letter of Credit/Confirmation will be funded. However, if funding does occur, the member must reimburse FHLB Dallas on the same day by depositing immediately available funds in its deposit account at the Bank. The Bank may permit the member to finance its reimbursement obligation, in which case the funding becomes an advance that is rolled over daily. The advance may then be converted to an appropriate term and interest rate upon request by the member and agreement by the Bank. In addition, any required capital stock purchase for the advance will be calculated and sufficient collateral will be required at the time of funding.
Evergreen Feature for Letters of Credit
The Evergreen feature is available with Letter of Credit Confirmations, Direct Letters of Credit, and Standby Letters of Credit. They can be structured to meet a range of objectives with flexible terms:
- Initial maturity (1 to 14 years)
- Renewal period (1 to 14 years)
- Final maturity (up to 15 years)
- Notice period for non-renewal (30, 60, or 90 days)
Without FHLB Dallas' notice to the beneficiary, the Evergreen feature automatically renews the Letter of Credit through the final term.