Section 892-X-1-.19 - Use Of LOC As Eligible Collateral (Alabama Administrative Code)

§ 892-X-1-.19. Use Of LOC As Eligible Collateral

(1) A QPD may apply for approval from the Treasurer to use Letters of Credit in connection with satisfying the QPD's Collateral-Pledging Requirement by completing, signing and submitting a Letters of Credit Agreement Governing Use (the "LC Agreement"). The appropriate form of Collateral Agreement, Contingent Liability Agreement, Certification(s) of Adoption of Directors' Resolution, and Authorized Representative(s) and Signature Certification specified in Rule must be on file with the Treasurer. The use of Letters of Credit by a QPD will be subject to all of the terms and conditions of the LC Agreement, the provisions and requirements of the SAFE Program Act, Rules and any additional requirements, conditions and limitations prescribed by the Treasurer.

(2) Each Letter of Credit issued and delivered to the Treasurer shall:

(a) Be irrevocable and unconditional;

(b) Have an initial expiration date that is not sooner than one (1) year from the date of issuance;

(c) Provide that the expiration date thereof shall be automatically extended, without amendment, for successive one (1) year periods from the then applicable expiration date unless the issuer of the letter of credit shall have notified the Treasurer in writing not less than ninety (90) days prior to the then applicable effective date that the issuer has elected not to extend the expiration date for the additional period;

(d) Permit multiple and partial drawings; and

(e) Shall otherwise be in a form approved by the Treasurer.

(f) The Treasurer may obtain certificates of incumbency from each LOC issuer periodically to verify the signature authority of officers who execute Letters of Credit.

(3) Changes in the terms of Letters of Credit shall be made in the form of an amendment. All amendments to the Letter of Credit shall be subject to the prior written approval or disapproval of the Treasurer and shall be in form and content acceptable to the Treasurer. The QPD shall be responsible to make appropriate application to the LOC issuer for any amendment approved by the Treasurer. Unless otherwise approved by the Treasurer in writing, Letters of Credit may not be amended more than six (6) times during each twelve-month period.

(4) The Treasurer shall have the unconditional right, without further proceedings and without notice of any kind to the QPD or any other person (other than the LOC issuer) to draw, in whole or in part, and in either single or multiple drafts, on any or all Letters of Credit held by the Treasurer at any time prior to the expiration of the Letter of Credit if the Treasurer, in his or her discretion, determines that it is necessary to draw on the Letter of Credit, including by way of example but not limited to, upon any of the following:

(a) Any Default or Insolvency, as defined in Section 41-14A-2(7) of the Code of Alabama, shall occur with respect to the QPD;

(b) The QPD violates or fails to comply with any of the terms or requirements of the LC Agreement, the QPD's Contingent Liability Agreement, the Collateral Agreement or any other agreement or instrument executed by the QPD in connection with the SAFE Program;

(c) There shall occur any event or circumstance which constitutes grounds for any involuntary withdrawal or suspension of the QPD from the SAFE Program or for the imposition of administrative penalties against the QPD;

(d) The QPD fails to have on deposit with the Treasurer Required Collateral;

(e) The Treasurer receives notification from the LOC issuer that it will not extend the expiration date of any Letter of Credit ; or

(f) In the case of any Letter of Credit that has a final stated expiration date, the QPD fails to provide to the Treasurer, not less than 30 days prior to the final expiration date, (a) an amendment to the existing Letter of Credit extending its expiration date for at least one (1) year from its then stated expiration date or (b) other Eligible Collateral.

(5) No cancellation of any Letter of Credit shall be effective until the Treasurer has provided written approval to the QPD and returned the Letter of Credit to the LOC issuer. The QPD shall be responsible to make appropriate written request to the Treasurer and to make the appropriate request to the LOC issuer with the Treasurer's written approval attached.

(6) No substitution of any Letter of Credit for other Eligible Collateral shall be effective until the Treasurer has received the properly executed Letter of Credit or approved amendment to an existing Letter of Credit. No substitution of any Eligible Collateral for any Letter of Credit shall be effective until Custodian has acknowledged to the Treasurer in writing the Custodian's receipt of the substitute collateral and the Treasurer has returned the Letter of Credit to the issuer.

(New Rule: Filed December 20, 2004; effective January 24, 2005. Amended (Rule Number Only): Filed January 19, 2006; effective February 23, 2006. Amended: Filed August 20, 2008; effective September 24, 2008.)

Rule 892-X-1-.18 was renumbered to Rule 892-X-1-.19 as per certification filed January 19, 2006; effective February 23, 2006.

Author: Daria S. Story, Chief Operating Officer, Office of State Treasurer

Statutory Authority: Code of Ala. 1975, §§ 41-14A-2, 41-14A-6, 41-14-35 as amended.

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