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25 Pa. Code § 271.323. Collateral bonds—letters of credit.

§ 271.323. Collateral bonds—letters of credit.

 (a)  Letters of credit submitted as collateral for collateral bonds are subject to the following conditions:

   (1)  The letter of credit shall be a standby or guarantee letter of credit issued by a Federally insured or equivalently protected state-chartered or National financial institution chartered or authorized to conduct the business of banking in the United States and examined by a state or Federal agency. The letter of credit may not be issued without a credit analysis substantially equivalent to a credit analysis applicable to a potential borrower in an ordinary loan situation. A letter of credit so issued shall be supported by the customer’s unqualified obligation to reimburse the issuer for moneys paid under the letter of credit.

   (2)  The letter of credit shall be irrevocable and shall be so designated. The Department may accept a letter of credit for which a limited time period is stated if the following conditions are met and are stated in the letter:

     (i)   The letter of credit is automatically renewable for additional time periods unless the bank gives at least 90 days prior written notice to both the Department and the operator of its intent to terminate the credit at the end of the current time period.

     (ii)   The Department has the right to draw upon the credit before the end of this time period, if the operator fails to replace the letter of credit with other acceptable bond guarantees within 60 days of the bank’s notice to terminate the credit.

   (3)  The Department will not accept letters of credit issued for a customer when the amount of the letter of credit, aggregated with other loans and credits extended to the customer, exceeds the issuer’s legal lending limit for that customer as defined in the United States Banking Code (12 U.S.C.A. § §  21—220).

   (4)  Letters of credit shall name the Department as the beneficiary and shall be payable to the Department, upon demand, in part or in full, upon presentation of the Department’s drafts, at sight. The Department’s right to draw upon the letter of credit does not require documentary or other proof by the Department that the customer has violated the conditions of the bond, the permit or another requirement.

   (5)  Letters of credit are subject to letters of credit or the equivalent article or division of 13 Pa.C.S. (relating to the Uniform Commercial Code) in effect in the state of and which governs the bank issuing the letter of credit and the latest edition of Uniform Customs and Practice for Documentary Credits, published by the International Chamber of Commerce.

   (6)  The Department will not accept letters of credit from a bank which has failed or delayed in making payment on a letter of credit previously submitted as collateral to the Department.

   (7)  The issuing bank shall waive the rights of setoff or liens which it has or might have against the letter of credit.

 (b)  If the Department collects an amount under the letter of credit due to failure of the operator to replace the letter of credit after demand by the Department, the Department will hold the proceeds as cash collateral as provided by this subchapter.

 (c)  Upon notice by the bank of its intent to terminate the letter of credit, the Department will notify every municipality in which the facility or a part of the facility is located, of the Department’s receipt of notice of the bank’s intent to terminate the letter of credit. The Department may provide the notice by submitting a copy of the Department’s notice to the operator requiring replacement collateral or surety guarantee to the governmental unit.


   The provisions of this §  271.323 adopted April 8, 1988, effective April 9, 1988, 18 Pa.B. 1681; amended September 13, 1991, effective September 14, 1991, 21 Pa.B. 4179. Immediately preceding text appears at serial pages (126143) to (126145).

Cross References

   This section cited in 25 Pa. Code §  271.313 (relating to form, terms and conditions of the bond or trust); 25 Pa. Code §  284.641 (relating to bond requirement); and 25 Pa. Code §  285.341 (relating to bond requirement).

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