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letter of credit

   Also found in: Dictionary/thesaurus, Legal, Acronyms, Encyclopedia, Wikipedia 0.04 sec.
Letter of credit (LOC)
A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues.
letter of credit
A promise of payment in the event that certain requirements are met. A letter of credit essentially substitutes the credit of a third party (usually a large bank) for that of a borrower. In the case of municipal bonds, an LOC generally permits a trustee to draw six months' interest and sufficient funds to retire outstanding bonds at par in the event of default.


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