Document Drafting Matters
- Ensure that the reimbursement agreement or letter of credit describes how the letter of credit may be cancelled, and what the process is when an optional redemption pursuant to the terms of the reimbursement agreement coincides with the date on which the letter of credit is cancelled. Should an optional redemption notice be provided or should the optional redemption be waived?
Payment of letter of credit fees might be considered capital expenditures, especially if paid during the project period. If the letter of credit fee is amortized beyond the project period, however, portions of the fee could be treated as working capital expenditures. Therefore, it may make sense to assume that the fee won’t be counted as a capital expenditure to test whether the 95/5 test is met.