The Letter of Credit Facility Agreement is a fundamental document in trade finance, particularly crucial in Hong Kong's role as an international trading and financial hub. It is used when companies require documentary credit support for their international trade operations, enabling them to conduct secure import/export transactions. The agreement sets out the complete framework for the issuance of letters of credit, including facility limits, conditions precedent, operational procedures, security requirements, and compliance obligations. Being governed by Hong Kong law, it incorporates local banking regulations while adhering to international banking practices and UCP 600 guidelines. This document is essential for businesses seeking to establish or maintain trade finance facilities with banks, providing them with the necessary credit support for their cross-border trading activities.
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1. Parties: Identification of the financial institution (lender) and the customer (borrower)
2. Background: Context of the facility arrangement and relationship between parties
3. Definitions and Interpretation: Key terms used throughout the agreement and rules of interpretation
4. The Facility: Details of the letter of credit facility including type, purpose, and limit
5. Conditions Precedent: Documents and conditions required before the facility becomes available
6. Utilization: Process and requirements for utilizing the facility, including application procedures
7. Letter of Credit Terms: Specific terms governing the issuance and operation of letters of credit
8. Fees and Charges: All applicable fees, commission, and charges
9. Payments and Cash Cover: Payment obligations and requirements for cash collateral
10. Representations and Warranties: Standard declarations made by the borrower
11. Undertakings: Ongoing obligations of the borrower throughout the facility period
12. Events of Default: Circumstances that constitute default and consequences
13. Changes to Parties: Rules regarding assignment and transfer of rights and obligations
14. Notices: Communication procedures between parties
15. General Provisions: Miscellaneous legal and operational provisions
16. Governing Law and Jurisdiction: Application of Hong Kong law and jurisdiction
1. Security: Required when the facility is secured by collateral or guarantees
2. Insurance: Included when specific insurance requirements are imposed on the underlying trade transactions
3. Increased Costs: Added when the bank needs protection against regulatory changes affecting costs
4. Tax Gross-up and Indemnities: Required when tax implications need specific attention
5. Multi-currency Provisions: Included when the facility allows for letters of credit in multiple currencies
6. Counter-Indemnity: Required when additional indemnity arrangements are needed
7. Group Facility Provisions: Included when the facility extends to borrower's group companies
1. Conditions Precedent Documents: List of required documents and conditions to be satisfied
2. Form of Utilization Request: Standard form for requesting issuance of letters of credit
3. Fee Schedule: Detailed breakdown of all applicable fees and charges
4. Form of Letter of Credit: Standard template for letters of credit to be issued
5. Authorized Signatories: List of persons authorized to act on behalf of the borrower
6. Security Documents: Details of any security arrangements and related documentation
7. Compliance Certificate: Template for periodic compliance certification
8. Existing Facilities: Details of any existing facilities and their relationship to this facility
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