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Letters Of Credit and Bank Credit Ratings

51 - Letters Of Credit and Bank Credit Ratings

  • Proposer
  • Proposing Company EASTERN POWER NETWORKS PLC
  • Status Closed
  • Urgent No
  • Synopsis

    BEIS and Banks have raised a concern that Schedule 1 of DCUSA currently requires any bank that issues a Letter of Credit, to support credit cover, to have a credit rating of A or above from Moody’s or Standard & Poor’s.

    Schedule 1 of DCUSA was originally based on Ofgem’s best practice guidelines for credit cover, which were published in February 2005;
    https://www.ofgem.gov.uk/publications-and-updates/best-practice-guidelines-gas-and-electricity-network-operator-credit-cover-conclusions-document

    Since that time, the global banking sector has undergone a number of changes, including the ‘financial crisis’, which have resulted in banks having a lower rating.

    This means that the market place for DCUSA parties to procure (and indeed for banks to provide) Letters of Credit is restricted.

    The SIG is asked to consider the impact on Suppliers and whether changes are required to Schedule 1 with regard to the rating of banks issuing Letters of Credit.

    The DCUSA SIG considered this issue at their meeting on 31 March 2017.