Letter of Credit Forum

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Actually this is in substance no different to reimbursement undertakings given by the World Bank (IDA) to commercial banks who confirm LCs issued by commercial banks in the developing world.

Your buyer approaches OPIC by completing an application form and and requests OPIC to issue its reimbursement undertaking to your confirming bank (the name of the confirming bank is nominated on the application form). OPIC then issues its reimbursement authority to the confirming bank. If the LC states that reimbursement is to be obtained through OPIC's reimbursement undertaking, it is imperative that the LC is considered as inoperative, until such time that the undertaking has been issued.  

Such "irrevocable" undertakings are of course, more secure than relying on recourse direct on the issuing bank. In fact, under the terms of the agreement, it is debatable whether the issuing bank is financially liable at all, and whether it would be appropriate (if subject to UCP600), to exclude  sub-Article. 6 (a) and Article. 7, from the LC.

The confirming bank should ensure that the undertaking is issued as "irrevocable" and not as "qualifiable" or conditional. The agreement supports both forms. 

The undertaking provides a confirming bank with comfort to add its confirmation, and under the BASEL II accord, would enable the confirming bank to "zero weight" the contingent exposure, on account of the counterparty risk being on an entity such as OPID or the WB, i.e recognising the fact that the likelihood of such bodies not being financailly able to meet its obligations is remote.

The confirming bank is however likely to factor in a payment delay period of at least 45 days, which is the maximum delay in its receiving reimbursement from OPID.