Bond Enhancement

Consider LCs for Bond Credit Enhancements

A letter of credit (LC) from a rated bank can be used to arrange financing for a housing or community economic development project with proceeds from a bond issuance. Members that are unrated, or that have less than an Aaa or AA+ rating, may retain their customer relationships by requesting an FHLB Chicago confirming/standby or direct pay LC, which will guarantee the principal and interest payments to bondholders and credit enhance the bonds with its Aaa/AA+ rating. Direct pay LCs issued by the FHLB Chicago also accommodate multi-member participation structures.

The FHLB Chicago offers support for taxable and tax-exempt bond financing for housing projects and for taxable bonds for community economic development activities.

Proceeds from the bond issuance can help finance a range of projects, including but not limited to:

  • Housing developments;

  • Health care facilities;

  • Schools and universities; and

  • Manufacturing plants.

 

How Does the FHLB Chicago Credit Enhancement Work?

The FHLB Chicago member works with the borrower and underwriters to determine project feasibility and terms of bond financing.

In most cases, the FHLB Chicago issues a standby LC in support of a member's LC, under which the FHLB Chicago promises to make payments for the benefit of the bondholders if the member does not pay under its LC. Alternatively, the FHLB Chicago also offers direct pay LCs under which the FHLB Chicago provides the primary payment mechanism on the bonds.

Bonds are issued with the FHLB Chicago rating which increases the marketability of the bonds and reduces the financing costs.

For more information, read our brochure Letters of Credit for Bond Financings.

 

Contact

For more information about lett​ers of credit please contact one of our LC Specialists or email lcops@fhlbc.com.

Hunter Kennedy                                                                                   (312) 565-5781

Brian Liu                                                                                               (312) 552-2667

Mike Palumbo                                                                                      (312) 552-1241​

Jay Rutherford                                                                                      (312) 552-1285​



To execute a letter of credit please contact the Member Transaction Desk at (855) FHLB-CHI (855-345-2244), Option 1, or contact yo​ur sales director.