Letters of Credit

Refundable Municipal Letters of Credit

Term:2 weeks to 1 year
Fees:

$100 Draw Fee
(if there is a default on the L/C)

On June 1, 2009, the FHLBNY launched a new type of letter of credit — the Refundable Municipal Letter of Credit (Refundable MULOC).  This letter of credit is more flexible in collateralizing municipal/public fund transaction accounts, whose balances fluctuate over time. 

Regular Municipal Letters of Credit (MULOC) are traditionally used to collateralize fixed-balance and term certificates of deposit. As such, matching the MULOC to the balance in the deposit is easy. With a transaction account, the balance will fluctuate with municipal/public fund receipts and disbursements.

To avoid having to issue multiple MULOCs as the balance fluctuates, a member can obtain one Refundable MULOC in an amount equal to an estimated high-balance in the transaction account.  A portion of the MULOC fee can be refunded at maturity if the actual high-balance in the transaction account remains below the amount of the Refundable MULOC during its entire term.  

 

Example:  You estimate your transaction account high-balance to be $5 million for the year.  At the end of the year, your actual high-balance is $4 million.  You will be reimbursed the fee for the unused $1 million.

 

In short, the new Refundable MULOC provides all the advantages of a regular MULOC, but it also offers a partial fee reimbursement when the MULOC is not fully utilized.*

 

Benefits of the Refundable MULOC

In addition to the regular MULOC benefits, Refundable MULOCs:

  • Reduce MULOC fees if full MULOC is not utilized
  • Eliminate over-collateralization of municipal/public fund deposits with fluctuating balances
  • Are operationally efficient

 

*To receive a refund, you must complete and fax the Refundable MULOC Certification Form (HLB-118r) within 5 business days of the L/C’s maturity.

 

 

Calling Officers
(212) 441-6700

 

 
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