Security Policy Regarding Letters of Credit

By-Law Number
As Amended by

Legislative History: Enacted June 13, 2017 (By-law No. CPOL.-42-238); Amended June 26, 2018 (By-law No. CPOL.-350-341)

Last Review Date: July 25, 2023

Service Area Lead: Director, Financial Planning & Business Support (or designate)

1. Policy Statement

The purpose of this policy is to formalize and clarify practices on the acceptance of letters of credit from banks and other financial institutions.

2. Definitions

Not Applicable.

3. Applicability

This policy applies to the acceptance of letters of credit by the City from banks and other financial institutions.

4. The Policy

4.1 The City continues to accept letters of credit from Schedule I & II banks who have a credit rating of R1 middle or higher.

4.2  For “Other Financial Institutions”, the City accepts only letters of credit from trust companies or credit unions subject to the following:

4.2.1 where the institution can demonstrate a credit rating provided by a nationally recognized rating agency of R1 middle or higher (or equivalent), letters of credit with no aggregate limit, otherwise,

4.2.2 the greater of:

a) where the institutions provided letters of credit security to the City during 2001, letters of credit, the aggregate of which do not exceed the highest total amount of security provided during the year 2001 (i.e. the “grandfather provision”); OR

b) 3% of the Owner’s Equity as reported on the most recent audited financial statement, but in any case, not to exceed a limit of $1.5 million per institution, and subject in all cases to the following restrictions:

i) the financial institution shall provide a copy of the most recent audited financial statements which financial statements must contain an “unreserved” opinion regarding the fairness of the financial statements presented and shall not contain any negative opinion or comment regarding the ability of the institution to conduct business on a going concern basis; and

ii) issuing financial institution must have a corporate presence in the municipality (i.e. head office or branch office located within the City of London); and

iii) notwithstanding the above limitations on the amount of security the City will accept, administration may reject any letters of credit from a financial institution based on information it obtains that may suggest the financial organization is not in good standing with federal, provincial or municipal authorities (or similar reasons); and

iv) new credit unions or trust companies that otherwise meet all the requirements above may be permitted, subject to the prior approval of the City Treasurer, to submit development security on behalf of its clients; and

c) new credit unions or trust companies (i.e. that did not have a previous history of providing letters of credit to the City of London prior to December 31, 2001) that otherwise meet the requirements of the policy as described above and whose equity exceed $15 million may, subject to prior approval of the City Treasurer, be provided the opportunity to submit letters of credit. In granting the approval, the City Treasurer shall determine through whatever means they deem appropriate, whether the subject institution represents an “acceptable credit risk”. That determination will include, as a minimum, a review of audited financial statements of the corporation, and confirmation that the institution’s deposits are insured by either the Canada Deposit Insurance Corporation or Deposit Insurance Corporation of Ontario (as applicable).

Last modified:Tuesday, April 09, 2024