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Comment by bgirard | Hacker News Reader

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

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?

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.

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.

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