§ 86.158. Special terms and conditions for collateral bonds.
(a) The Department will obtain possession of and keep in custody collateral deposited by the permittee until authorized for release or replacement as provided in this subchapter.
(b) Collateral bonds pledging negotiable government securities are subject to the following conditions:
(1) The Department will determine the current market value of government securities for the purpose of establishing the value of the securities for bond deposit.
(2) The current market value, less any legal and liquidation costs, is at least equal to the amount of the required bond amount.
(3) The Department may periodically revalue the securities and may require additional amounts if the current market value is insufficient to satisfy the bond amount requirements for the facility. At a minimum, the Department shall require any necessary additional amounts with each permit renewal.
(4) The operator may request and receive the interest accruing on governmental securities with the Department as the interest becomes due and payable. The Department will not make interest payments for postforfeiture interest accruing during appeals, and after resolution of the appeals, when the forfeiture is adjudicated and decided in favor of the Commonwealth.
(c) A collateral bond pledging certificates of deposit is subject to the following conditions:
(1) The Department will require that certificates of deposit be assigned to the Department, in writing, and the assignment recorded upon the books of the bank issuing the certificates.
(2) The Department will not accept an individual certificate of deposit for denominations in excess of $100,000, or maximum insurable amount as determined by the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation.
(3) The Department will require the banks issuing these certificates of deposit to waive rights of setoff or liens which they have or might have against those certificates.
(4) The Department will only accept automatically-renewable certificates of deposit.
(5) The Department will require the permittee to deposit sufficient amounts of certificates of deposit, to assure that the Department will be able to liquidate those certificates prior to maturity, upon forfeiture, for the amount of the bond required by this subchapter.
(6) The Department will only accept certificates of deposit from banks or banking institutions licensed or chartered to do business in the United States.
(7) The Department will not accept certificates of deposit from banks which have failed or unduly delayed in making payment on defaulted certificates of deposit.
(8) The permittee is not entitled to interest accruing after forfeiture is declared by the Department unless the forfeiture declaration is ruled invalid by a court having jurisdiction over the Department, and the ruling is final.
(d) A collateral bond pledging a letter of credit is subject to the following conditions:
(1) The letter of credit shall be a standby letter of credit issued by a Federally-insured or equivalently protected bank or banking institution, chartered or authorized to do business in the United States which agrees to jurisdiction within this Commonwealth.
(2) A letter of credit is irrevocable. The Department may accept a letter of credit which is irrevocable for a term of a year if:
(i) The letter of credit is automatically renewable for additional terms unless the bank gives at least 90 days prior written notice to the Department and the permittee of its intent to terminate the credit at the end of the current term.
(ii) The Department has the right to draw upon the credit before the end of its term and convert it into a cash collateral bond, if the permittee fails to replace the letter of credit with other acceptable bond within 30 days of the bank’s notice to terminate the credit.
(3) The letter shall be payable to the Department in part or in full upon demand and receipt from the Department of a notice of forfeiture issued inaccordance with § § 86.180—86.182 and 86.185—86.190, or demand for payment under paragraph (2)(ii).
(4) The Department will not accept letters of credit from a bank for a permittee, on permits held by that permittee, in excess of 10% of the bank’s capital surplus account as shown on a balance sheet certified by a certified public accountant.
(5) A letter of credit written by Commonwealth banks or other institutions is governed by:
(i) The laws of the Commonwealth, including 13 Pa.C.S. § § 1101—9507 (relating to Uniform Commercial Code).
(ii) The current version of the Uniform Customs and Practices for Documentary Credits, published by the International Chamber of Commerce.
(iii) A bank or other institution outside this Commonwealth which writes letters of credit, shall agree to be governed by the documents identified within this subsection.
(6) Letters of credit shall provide that the bank will give prompt notice to the permittee and the Department of notices received or actions filed alleging the insolvency or bankruptcy of the bank, or alleging violations of regulatory requirements which could result in suspension or revocation of the bank’s charter or license to do business.
(7) The Department will not accept letters of credit from a bank that has failed or unduly delayed in making payment on a defaulted letter of credit.
(e) A collateral bond in the form of a life insurance policy is subject to the following conditions:
(1) The policy shall be fully paid and noncancellable with a cash surrender value irrevocably assigned to the Department at least equal to the amount of the required bond, and which may not be borrowed against and may not be utilized for any other purpose.
(2) The policy shall be a single-premium, ordinary whole life policy.
(3) The policy shall be designed so that in the event of the death of the insured, the Department receives from the proceeds of the policy an amount equal to the amount of the bond. The Department will hold the proceeds as cash collateral until release of all or part of the bond is authorized by the Department.
(4) The insurance company shall be licensed by the Insurance Commissioner to do business in this Commonwealth or be designated by the Insurance Commissioner as an eligible surplus lines insurer.
(5) The policy shall bear no liens, loans or encumbrances, and none shall become effective without the prior written consent of the Department.
(6) The person applying for the permit or the permittee, once the permit is issued, shall own the policy.
(7) The Department will maintain possession of the policy until authorized for bond release or replacement.
(f) A collateral bond in the form of an annuity or trust fund is subject to the following conditions:
(1) The amount of the trust fund or annuity shall be determined and set by the Department. The amount shall be that amount determined by the Department as necessary to meet the bonding requirements established by the Department for a permittee.
(2) The trust fund or annuity shall be in a form and contain terms and conditions as required by the Department. At a minimum, trust fund or annuity shall provide that:
(i) The Department is irrevocably established as the beneficiary of the trust fund or of the proceeds from the annuity.
(ii) Investment objectives of the trust fund or annuity shall be specified by the Department.
(iii) Termination of the trust fund or annuity may occur only as specified by the Department.
(iv) Release of money to the permittee from the annuity or trust fund may be made only upon written authorization of the Department.
(3) A financial institution serving as a trustee or issuing an annuity shall be a State-chartered or National bank or other financial institution with trust powers or a trust company with offices located in this Commonwealth and whose activities are examined or regulated by a State or Federal agency. An insurance company issuing an annuity shall be licensed or authorized to do business in this Commonwealth by the Insurance Commissioner or be designated by the Insurance Commissioner as an eligible surplus lines insurer.
(4) Trust funds and annuities, as described in this subsection, are established under government authority for the public purpose to guarantee that moneys are available for the Department to pay for treatment of postmining pollutional discharges or reclamation of the mine site or both. Trust funds and annuities constitute property of the Commonwealth and, as such, any earnings, profits and distributions shall have the same tax status accorded the Commonwealth.
(g) Collateral shall be in the name of the permittee, and shall be pledged and assigned to the Department free of rights or claims. The pledge or assignment shall vest in the Department a property interest in the collateral which shall remain until released under the terms of this chapter, and will not be affected by the bankruptcy, insolvency or other financial incapacity of the operator, as allowed by law. The Department will ensure that ownership rights to deposited collateral are established to make the collateral readily available upon forfeiture. The Department may require proof of ownership and other means, such as secondary agreements, as it deems necessary to meet the requirements of this chapter.
Authority The provisions of this § 86.158 amended under section 5 of The Clean Streams Law (35 P.S. § 691.5); sections 4(a) and 4.2 of the Surface Mining Conservation and Reclamation Act (52 P.S. § § 1396.4(a) and 1396.4b); section 3.2 of the Coal Refuse Disposal Control Act (52 P.S. § 30.53b); section 7(b) of The Bituminous Mine Subsidence and Land Conservation Act (52 P.S. § 1406.7(b)); and section 1920-A of The Administrative Code of 1929 (71 P.S. § 510-20).
Source The provisions of this § 86.158 adopted December 19, 1980, 10 Pa.B. 4789, effective July 31, 1982, 12 Pa.B. 2382; amended July 30, 1982, 12 Pa.B. 2473, effective July 31, 1982, 12 Pa.B. 2382; amended June 15, 1990, 20 Pa.B. 3383, effective July 27, 1991, 21 Pa.B. 3316; amended November 14, 1997, effective November 15, 1997, 27 Pa.B. 6041; amended March 13, 2020, effective March 14, 2020, 50 Pa.B. 1508. Immediately preceding text appears at serial pages (237097) to (237101).
Cross References This section cited in 25 Pa. Code § 86.155 (relating to scope).
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