What is a letter of credit sublimit in an ABL revolver?
Last updated: August 27, 2026
What is a standby letter of credit?
A standby letter of credit is the lender's written commitment to pay a beneficiary if the borrower fails to perform an obligation. The OCC Comptroller's Handbook notes that ABL facilities may include "a letter of credit or an insurance policy carrying minimal deductibles." LCs are commonly required by landlords, suppliers, or project owners. The LC does not involve a cash advance unless the beneficiary draws on the LC due to the borrower's non-performance.
How does an LC sublimit work?
The credit agreement specifies an LC sublimit as part of the revolver commitment. The borrower may request LCs up to the sublimit amount, subject to availability. Outstanding LC face amounts count against availability and reduce the amount available for cash advances.
| Component | Treatment |
|---|---|
| LC sublimit | Maximum outstanding LC face amount the borrower may request |
| Outstanding LCs | Count against availability; reduce cash advance capacity |
| Availability | Shared between cash advances and LC issuance, up to sublimit |
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Frequently asked questions
What is a letter of credit sublimit in an ABL revolver?
A letter of credit (LC) sublimit allows the borrower to request that the ABL lender issue standby letters of credit within the revolver commitment. The LC sublimit is a portion of the total commitment and shares availability with cash advances. Outstanding LC face amounts reduce cash availability because they count against the borrowing base.