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    Default FDIC Warns It Will Not Honor Some Letters of Credit

    As businesses continue to struggle in this poor economy, commercial landlords have a lot on their minds. But beyond store closures, tenant defaults and vacant suites — commercial landlords have something else to worry about. Many of the letters of credit they collected from tenants to secure their leases, could end up being worthless. For more on this, read the following article written by attorney Anton Natisis and posted on JD Supra.

    In the early 1990s, commercial landlords experienced a significant increase in the number of defaults by their office and retail tenants. This situation prompted many landlords to require credit enhancement in connection with leases to noncredit tenants. Because of tenant bankruptcy concerns, the preferred source of credit enhancement became letters of credit. As the late 1990s and early part of this decade brought an influx of dot-com companies with no financial track records, commercial landlords were forced to rely heavily on letters of credit for security against tenant defaults and bankruptcies. Given the current market conditions and the ongoing rise in office and retail tenant defaults, commercial landlords are again relying heavily on credit enhancement instruments as a source of financial security. Accordingly, the use of letters of credit as the preferred credit enhancement instrument is more in focus now than ever before.

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