§ 78a.306. Collateral bonds—letters of credit.
(a) Letters of credit submitted as collateral for collateral bonds shall be subject to the following conditions:
(1) The letter of credit must be a standby or guarantee letter of credit issued by a Federally-insured or equivalently protected financial institution, regulated and examined by the Commonwealth or a Federal agency and authorized to do business in this Commonwealth.
(2) The letter of credit must be irrevocable and must be so designated. However, 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 financial institution 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 its time period, if the operator fails to replace the letter of credit with other acceptable means of compliance with section 3225 of the act (relating to bonding) within 30 calendar days of the financial institution’s notice to terminate the credit.
(3) Letters of credit must name the Department as the beneficiary and 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 other requirements.
(4) A letter of credit is subject to 13 Pa.C.S. (relating to Uniform Commercial Code) and the latest revision of Uniform Customs and Practices for Documentary Credits as published in the International Chamber of Commerce Publication No. 400.
(5) The Department will not accept a letter of credit from a financial institution which has failed, refused or unduly delayed to pay, in full, on a letter of credit or a certificate of deposit previously submitted as collateral to the Department.
(6) The issuing financial institution shall waive rights of set-off or liens which it has or might have against the letter of credit.
(b) If the Department collects any 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. The operator may obtain the cash collateral after he has submitted and the Department has approved a bond or other means of compliance with section 3225 of the act.
Cross References This section cited in 25 Pa. Code § 78a.303 (relating to form, terms and conditions of the bond).
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