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Comment by caseysoftware | Hacker News Reader

What does this mean?

> the Chicago-based landlord that owns Twitter’s offices at 3401 Bluff St in Boulder, was provided a $968,000 letter of credit back in February of 2020, which it has been drawing on to pay the rent in lieu of ordinary payments (the details of this arrangement are somewhat obscure).

Does this mean that Twitter hasn't been paying for this office in over three years? That there's just a line of credit the landlord has been drawing on?

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It's a letter of credit. Not a line of credit. Not an escrow account. Not a prepayment. It's not obscure like the author of the article thinks. Letters of credit are a very common arrangement.

Effectively, it's a guarantee provided by a bank saying, "if Twitter doesn't pay, we will". Now it's up to the bank to get repaid by Twitter.

It's the details that are obscure - when or if Twitter ever paid rent directly or if (as some of the other pubs have suggested) it just established this bucket and said withdraw as needed. The setup predates Musk so it's possible there was some mix.

No, it's not a bucket to pay your rent.

What's the $900,000 amount then? Is that just the limit, how much the bank will pay at most?

It's the max amount that the landlord can claim. It's typically a negotiated dollar amount between Twitter and landlord. Usually put in place at beginning of lease. Pretty much same as a rental deposit, but instead of giving cash, Twitter provide an letter of credit.

As I understand it, it’s sort of like a bank acting as an escrow account where the landlord could draw from their account directly with a contractual guarantee from the bank that the funds would be there.

https://en.wikipedia.org/wiki/Letter_of_credit

It sounds like Feb 2020 was when the letter of credit was arranged, not when it started to be drawn on

It sounds to me like they pre-paid $968,000 and the prepayment has ben exhausted. I found this confusing as well.

it sounds to me like the line of credit is just a loan, such that the money for "rent" comes from a "loan" .. no cash flow involved. whoever wrote the line of credit is the one paying the rent. In large finance groups, I get the feeling this is ordinary back-scratch behavior.

One major difference is that with standard lines of credit it's a transaction between the bank loaning funds and the borrower only. With letters of credit, the payee is also a signatory to the contract.

edit: and I guess the payee's receiving financial institution is also a signatory if those are different entities from the payee! Or at least can be, I'm running into Dunning Kruger so I'll tap out now.

It's not a prepayment. It's a line of credit. Think closer to a credit card with a limit instead of money out of pocket.

The difference between a line of credit and a letter, afaik, is you can't regenerate available credit with a letter by paying back. The letter of credit is a one-time sum, so you can't pay down partway through to extend the lifetime loan amount.

I'm not a financial analyst so take with grain of salt, that's just how I'd heard it discussed in banking.

It’s a letter of credit not line of credit. It’s basically a certified check in a way.

This is super simple. Twitter put a deposit (think rental deposit) down on their lease in 2020. Instead of depositing $900k with the landlord they deposited 900k into a bank. In turn the bank issued a $900k letter of credit to the landlord who can use the funds in the same fashion a deposit could be used. This is done because LOCs are harder for other creditors to seize in bankruptcy court.

At some point Twitter stopped paying their rent and I’m sure there is a clause in the lease that allows the LL to draw down the letter of credit to pay the rent. Twitter also has an obligation the replenish the LOC.

So in other words, Twitter was in fact paying rent until the LOC ran out. Twitter now owes money to both the bank and the landlord?

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