COALEX State Comparison Report - 184
April, 1991
G. Milton McCarthy, Esquire
Alabama Surface Mining Commission
P.O. Box 2390
Jasper, Alabama 35502-2390
TOPIC: USE OF LETTERS OF CREDIT AS RECLAMATION BONDS
INQUIRY: This Report consists of a copy of the paper presented by G. Milton McCarthy (Assistant
Attorney General, Alabama Surface Mining Commission) at the Seventh Annual Conference of
Government Mining Attorneys and the survey on Letters of Credit Bonds conducted for him by the
IMCC.
SURVEY RESULTS: Eleven IMCC members participated in the survey. A copy of the questionnaire
sent to the states appears below. The summary of responses follows. Copies of state regulations
are attached, as indicated.
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QUESTIONNAIRE (Reformatted from original)
1. Does your state accept letters of credit in lieu of reclamation bonds?
2.A. What is the approximate dollar amount of bonds currently held in the form of letters of
credit?
2.B. What percentage of your state's total bond liability is in the form of letters of credit?
2.C. In dollar amounts and percentages, how is bonding distributed between the following
forms: Surety; Certificates of Deposit; Cash; Letters of Credit; Self Bonds; Other (please
specify)?
3. To what degree has the percentage of bonding in the form of letters of credit increased or
decreased within the past five (5) years?
4. What requirements do you have that letter of credit bonds be issued for a specified term
(e.g., one year, five years)?
5. Does your state require that letters of credit be confirmed (backed up) by an in-state bank
as a condition to accepting a letter of credit from an out-of-state bank?
6.A. Have you had occasion to demand payment on any letter of credit bond?
6.B. If so, what sort of problems have you encountered in this regard?
7.A. Has payment ever been refused on any letter of credit bond presented by your state for
payment?
7.B. If so, what were the reasons stated for such refusal and how was the matter resolved?
8. In what respect do your state's regulation authorizing the acceptance of letters of credit
as bonds differ from the federal regulations found at 30 CFR 800.21? (Providing a copy of
the relevant part of your state's regulation would be a more than satisfactory response.)
STATE RESPONSES
ALABAMA
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 3,713,278 as of 9/30/90
2.B. Percentage of total bond liability: 3.43% as of 9/30/90
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 99,899,891 92.16%
Certificates of Deposit* $ 4,722,333 4.36%
Cash $ 58,093 0.05%
Letters of Credit $ 3,713,278 3.43%
Self Bonds 0 0
Other 0 0
Total: $108,393,595
* Includes municipal bonds (minimal amount)
3. % LOC increase/decrease in last 5 years: 783.91% increase
4. Term for LOC bonds: Term of 1 year (auto renewal)
5. Require confirmation (back up) of LOC: Yes (internal policy)
6.A. Demanded payment on LOC: Yes (2)
6.B. Problems encountered: We had no problems on one payment demanded. On the second,
the bank returned the company's collateral and said they had no record of LOC. Collection
is in process by legal division.
7.A. Payment ever been refused: See 6B
7.B. Reasons/resolution: See 6B
8. State/federal regulation differences: Sec. 880-X-9c-.03 attached
ARKANSAS
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 965,722
2.B. Percentage of total bond liability: 37%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 1,266,174 49%
Certificates of Deposit $ 197,553 8%
Cash 0 0%
Letters of Credit $ 965,722 37%
Self Bonds $ 161,542 6%
Other 0 0%
3. % LOC increase/decrease in last 5 years: Over 50% - increased $ 525,377
4. Term for LOC bonds: Banking laws require one year only except we require automatic
renewal each year unless we receive cancellation 180 days prior to next expiration date.
5. Require confirmation (back up) of LOC: No
6.A. Demanded payment on LOC: Yes
6.B. Problems encountered: FDIC has refused payment in one case, Bossier Bank of
Louisiana. Bank of Portugal Atlantico took exception and required legal action, in another.
7.A. Payment ever been refused: Yes
7.B. Reasons/resolution: See 6B
8. State/federal regulation differences: None
ILLINOIS
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 18,338,427
2.B. Percentage of total bond liability: 3.11%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 568,265,167 96.36%
Certificates of Deposit $ 670,562 0.11%
Cash $ 2,482,048 0.42%
Letters of Credit $ 18,338,427 3.11%
Self Bonds 0 0
Other 0 0
3. % LOC increase/decrease in last 5 years: None
4. Term for LOC bonds: The LOC is issued for the life of the permit or for one year with a
renewable clause that allows the Department to draw on the LOC if it is not renewed.
5. Require confirmation (back up) of LOC: Yes
6.A. Demanded payment on letters of credit: Yes
6.B. Problems encountered: None, such problems are precluded by our LOC format.
7.A. Payment ever been refused: Our LOC precludes refusal since we have a judgment clause
against the bank.
7.B. Reasons/resolution: n/a
8. State/federal regulation differences: The regulations require the issuing bank and /or the
confirming bank to have an office for payment in Illinois, the LOC has a judgment clause
against the issuing bank, and a certification from the president of the issuing bank that
the LOC and all other LOCs issued by the bank to the Department have a cumulative total
less than 10% of the bank's total capital and surplus accounts. (Regulation attached.)
KENTUCKY
1. Accept letters of credit (LOC): Kentucky accepts 4 types of reclamation bonds, they are
surety, certificates of deposit, letters of credit and cash.
2.A. Dollar amount held in form of LOC: $ 66,384,616.20 as of 1/24/91
2.B. Percentage of total bond liability: See next item.
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 728,083,532
Certificates of Deposit $ 13,382,008
Cash $ 1,766,169
Letters of Credit $ 66,384,616
Self Bonds 0
Other (Bond Pool) $ 12,128,830
3. % LOC increase/decrease in last 5 years: Use of this form of reclamation bond has been
about the same over the past several years.
4. Term for LOC bonds: The LOC bonds are generally issued for one year but are
automatically renewable and are irrevocable letters of credit.
5. Require confirmation (back up) of LOC: Yes, our regulations 405 KAR 10:030 require a
confirming in-state bank, on an out of state bank's LOC.
6.A. Demanded payment on LOC: Yes.
6.B. Problems encountered: On occasion, bank does not have collateral.
7.A. Payment ever been refused: Yes
7.B. Reasons/resolution: Bank misunderstood that LOC was automatically renewed unless they
sent the Department a letter of cancellation 30 days prior to cancellation.
8. State/federal regulation differences: Copy of Kentucky bonding regulations are attached.
LOUISIANA
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 787,950.50
2.B. Percentage of total bond liability: 5%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 16,085,083 95%
Certificates of Deposit 0 0
Cash 0 0
Letters of Credit $ 789,950 5%
Self Bonds 0 0
Other 0 0
3. % LOC increase/decrease in last 5 years: None
4. Term for LOC bonds: LOC expires one year from date of issuance, but is automatically
renewed for an additional year, unless notification is received from the bank 120 days in
advance.
5. Require confirmation (back up) of LOC: No
6.A. Demanded payment on LOC: No
6.B. Problems encountered: n/a
7.A. Payment ever been refused: No
7.B. Reasons/resolution: n/a
8. State/federal regulation differences: Attached.
MARYLAND
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 1,084,400
2.B. Percentage of total bond liability: 12%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 5,558,730 63%
Certificates of Deposit $ 2,250,260 25%
Cash 0 0
Letters of Credit $ 1,084,400 12%
Self Bonds 0 0
Other 0 0
3. % LOC increase/decrease in last 5 years: Maryland did not accept LOC prior to 5 years
ago. Therefore, percentage has gone from zero to 12%.
4. Term for LOC bonds: Life of permit (see attached regulation)
5. Require confirmation (back up) of LOC: Will accept LOC from banks out of state.
6.A. Demanded payment on LOC: Yes
6.B. Problems encountered: No real problem. Bank was just slow.
7.A. Payment ever been refused: No
7.B. Reasons/resolution: n/a
8. State/federal regulation differences: See attached Maryland regulation.
NEW MEXICO
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 53,431,980
2.B. Percentage of total bond liability: 48%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 6,128,997 6%
Certificates of Deposit 0 0
Cash 0 0
Letters of Credit $ 53,431,980 48%
Self Bonds $ 51,641,200 46%
Other 0 0
3. % LOC of credit increase/decrease in last 5 years: $ 0 in 1986
4. Term for LOC bonds: None
5. Require confirmation (back up) of LOC: No
6.A. Demanded payment on LOC: No
6.B. Problems encountered: n/a
7.A. Payment ever been refused: No
7.B. Reasons/resolution: n/a
8. State/federal regulation difference: Regulations attached.
OHIO
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 14,530,000
2.B. Percentage of total bond liability: 7.4%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 175,325,000 89.3%
Certificates of Deposit $ 5,935,000 3.0%
Cash $ 495,000 0.3%
Letters of Credit $ 14,530,000 7.4%
Self Bonds 0 0
Other 0 0
3. % LOC of credit increase/decrease in last 5 years:
1986 LOC = 7.1% of bond deposited
1990 LOC = 26.8% of bond deposited
4. Term for LOC bonds: None
5. Require confirmation (back up) of LOC: No
6.A. Demanded payment on LOC: Yes
6.B. Problems encountered: None
7A. Payment ever been refused: No
7.B. Reasons/resolution: n/a
8. State/federal regulation difference: See attached.
OKLAHOMA
1. Accept letters of credit (LOC): Yes
2.A. Dollar amount held in form of LOC: $ 7,606,034
2.B. Percentage of total bond liability: 16.7%
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 34,328,963.20 75.38%
Certificates of Deposit $ 891,652 1.96%
Cash $ 20,590 0.04%
Letters of Credit $ 7,606,034 16.70%
Self Bonds 0 0
Other $ 2,695,479.50 5.92%
3. % LOC of credit increase/decrease in last 5 years: LOC bonding has increased from
6.62% in 1986 to 17.60%in 1991. An increase of 10.08%.
4. Term for LOC bonds: We require LOC bonds to be valid for the life of the permit. Banks
usually conform to this requirement by issuing the LOC for one year terms and
automatically extending (renewing) the LOC for additional one year terms on the
anniversary date.
5. Require confirmation (back up) of LOC: No
6.A. Demanded payment on LOC: Yes
6.B. Problems encountered: None
7.A. Payment ever been refused: No
7.B. Reasons/resolution: n/a
8. State/federal regulation difference: Our regulations do not differ from the federal
regulations but add other conditions as evidenced by conditions (g)(4) through (g)(7) of
the attached copy of our regulations.
TENNESSEE
1. Accept letters of credit (LOC): No
2.A. Dollar amount held in form of LOC: n/a
2.B. Percentage of total bond liability: n/a
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 1,258,725 50%
Certificates of Deposit $ 981,805 39%
Cash $ 25,000 1%
Letters of Credit 0 0
Self Bonds 0 0
Other (municipal bonds) $ 251,745
3. % LOC of credit increase/decrease in last 5 years: n/a
4. Term for LOC bonds: n/a
5. Require confirmation (back up) of LOC: n/a
6.A. Demanded payment on LOC: n/a
6.B. Problems encountered: n/a
7.A. Payment ever been refused: n/a
7.B. Reasons/resolution: n/a
8. State/federal regulation difference: n/a
VIRGINIA
1. Accept letters of credit (LOC): No
2.A. Dollar amount held in form of LOC: n/a
2.B. Percentage of total bond liability: n/a
2.C. Dollar amounts and percentages of bonding forms:
Surety $ 151,600,960 96.84%
Certificates of Deposit $ 4,903,600 3.13%
Cash $ 46,600 0.03%
Letters of Credit 0 0
Self Bonds 0 0
Other 0 0
3. % LOC of credit increase/decrease in last 5 years: n/a
4. Term for LOC bonds: n/a
5. Require confirmation (back up) of LOC: n/a
6.A. Demanded payment on LOC: n/a
6.B. Problems encountered: n/a
7.A. Payment ever been refused: n/a
7.B. Reasons/resolution: n/a
8. State/federal regulation difference: n/a
ATTACHMENTS
A. G. Milton McCarthy, "Use Of Letters Of Credit As Reclamation Bonds" presented at the
Seventh Annual Conference of Government Mining Attorneys, Bonding Issues Panel
(1991).
B. ALABAMA: Sec. 880-X-9c-.03
C. ILLINOIS: 62 IAC Sec. 1800.21
D. KENTUCKY: 405 KAR 10:030
E. LOUISIANA: Sec. 206-12
F. MARYLAND: Sec. 08.13.09.15C
G. NEW MEXICO: CSMC Rule 80-1; Amendment No. 3; 14-21(b)
H. OHIO: Copy of Irrevocable Letter of Credit
I. OKLAHOMA: Sec. 800.21
Survey conducted by: IMCC
Survey compiled by: Joyce Zweben Scall
