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I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br /> <br />The Northern Bank <br /> <br />J. Stephen Schmidt <br /> Charrmln <br /> <br />May 23, 1983 <br /> <br />TO WHOM IT MAY CONCERN <br /> <br />Re: Letters of Credit, City of Ramsey <br /> <br />A brief explanation of what a Letter of Credit ist where it sits on a lender's <br />b~lance sheet, and what impact that it may have on a borrower seems appropriate <br />given the current discussions iu Ramsey. <br /> <br />Letter of Credit - What is it? <br /> <br />Basically, a Letter of Credit is an enforceable agreement by a lender to <br />extend f~nds on behalf of a borrower. While the collateral may be auy number <br />of things (cash, real estate, equipment), there are always three (at least) <br />parties to a Letter of Credit. ~he parties are; the lender, the borrower <br />(developer in most cases in Ramsey), and the third party who is depending upon <br />the Letter of Credit as security to ensure that some event (such as road comple- <br />tion) occurs. <br /> <br />Nearly ~11_ Letters of Credit are irrevocable by the lender, That is, once the <br />lender has evaluated the credit risk and issued the Ietter of Credit, the lender <br />will remain obligated to pay out upon demand at the request of the borrower or <br />third party until the expiration date of the Letter of Credit. <br /> <br />Where on a [ender's Balsnee Sheet? <br /> <br />The issusnce of a Letter of Credit creates an unfunded asset of the lender. <br />Letters of Credit are shown either in total or individually on a lender's balance <br />sheet. These commitments are examined (whether they have been funded or not) by <br />the regulators, reported as unfunded obligations of the borrower on the Statement <br />of Condition published in the newspaper, and reporbed to the Federal Reserve and <br />Federal Deposit Insurance Corporation. <br /> <br />The regulators count these obligations both as age_rust the borrowing ability of <br />the borrower, aud when evaluating the loan to deposit ratios of the lender. A <br />Letter of Credit is not limited to the collateral the lender has demanded, should <br />the borrower f~il to pay. A Letter of Credit is backed by the full f~ith and <br />credit of the lender. <br /> <br />3 LOCATIONS: 30t Jackson St. and 7" & Tyler, Anoka, Minnesofa 55303 · t67" & Hwy 47, Ramsey, Minnesofa 55303 · Telephone [612) 42 t-5460 <br /> <br /> <br />