Abstract
Two common credit enhancements devices used in international project finance, namely surety bonds and standby letters of credit, have their origins in the common law system. This Article will address their characteristics and how they are applied in a civil law system, specifically in Perú. In Part I, I will define credit enhancement and briefly describe the several types of devices used in international project finance. In Part II, I will address letters of credit, in particular standby letters of credit defining their nature and analyzing how they are different from independent guarantees. Moreover, I will tackle the nature of Peruvian Cartas Fianza Bancarias, ending this Part with an analysis of what instrument would be more beneficial to U.S. lenders and explaining how fraud is related to the standbys’ practice.
Part III tackles surety bonds. First, I will briefly address how they work in the United States and internationally, defining their nature and main characteristics. I will discuss the problem that arises when the surety decides not to pay the surety bond. In this Part, I will also describe the Peruvian Fianzas, which is the closest instrument to a surety bond in Peruvian legislation. Finally, I will compare the benefits of surety bonds and Fianzas to U.S. lenders, concluding that because of serious enforcement problems derived from the accessory nature of this credit enhancement device, U.S. lenders should consider Cartas Fianza Bancarias instead of surety bonds or Fianzas when facing international project finance in Perú.
Recommended Citation
Andrade, Renzo E.
(2013)
"Letters of Credit and Performance Bonds: How are These Popular Credit Enhancement Devices Applied in International Project Finance? From Their Common Law Origins to Their Application in Civil Law Systems—The Peruvian Case,"
Florida Journal of International Law: Vol. 25:
Iss.
3, Article 3.
Available at:
https://scholarship.law.ufl.edu/fjil/vol25/iss3/3