"A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC performs brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then sends notification to the bank of the party requesting the letter of credit (typically a seller or creditor)."
To make this simple, there is no actual transfer of funds. Much like most financial paper, it is simply a promise to pay. It would not be unlike a college aged child who's car has failed and have the parent's promise to pay if we do the work. I see this every day and we have to have payment. A promise is not a guarantee of payment and there is a fee for a bank to underwrite a SLOC.
Essentially Eddie acting like "dad" here without actually ponying up the cash. ESL has the cash to be credit worthy. With Mnuchin about to assume the Secretary of Treasury position I would assume that the terms are favorable to Eddie and ESL via Sh--tybank.
It is clear that Eddie has to protect ESL and SRG and a non-committal SLOC is the cheapest way to go.
I wonder, and this is pure conjecture on my part, is a .gov bailout of sorts in the cards here? I thought about going short SHLD and I bought silver instead. Something does not add up for me. You have three real estate tycoons involved as a President, Treasury Secretary and the CEO of what used to be the World's largest retailer. It's the real estate part that matters most.
Think about it.
ZHD