OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 1 of 9

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. 

SEARCH 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. 

QUESTIONNAIRE (Reformatted from original)

1. Does your state accept letters of credit ("LOC") in lieu of reclamation bonds?

2. 

A. What is the approximate dollar amount of bonds currently held in the form of 

letters of credit? 

B. What percentage of your state's total bond liability is in the form of letters of 

credit? 

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? 

B. If so, what sort of problems have you encountered in this regard? 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 2 of 9

7. 

A. Has payment ever been refused on any letter of credit bond presented by your 

state for payment? 

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 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 3,713,278 as of 9/30/90

2. B. Pct of total bond liability: 3.43% as of 9/30/90

2. C. Amt & pct 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 DOLLARS: $ 108,393,595 

* Includes municipal bonds (minimal amount) 

3. Pct LOC increased/decreased 

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. Any 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 refused? See 6. B.

7. B. Reasons/resolutions See 6. B.

8. State/federal regulation 

differences:

Sec. 880-X-9c-.03 attached
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 3 of 9

ARKANSAS 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 965,722

2. B. Pct of total bond liability: 37% 

2. C. Amt & pct 

forms:

of bonding 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. Pct LOC increased/decreased 

in last 5 years:

Over 50% increase: $ 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. Any 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 refused? Yes

7. B. Reasons/resolutions See 6. B.

8. State/federal regulation 

differences:

None

ILLINOIS 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 18,338,427

2. B. Pct of total bond liability: 3.11% 

2. C. Amt & pct of bonding Surety: $ 568,265,167 [ 96.36% ]

forms: Certificates of Deposit: $ 670,562 [ 0.11% ] 

Cash: $ 2,482,048 [ 0.42% ] 

Letters of Credit: $ 965,722 [ 37% ] 

Self Bonds: $ 0 [ 0% ] 

Other: $ 0 [ 0% ] 

3. Pct LOC increased/decreased None

in last 5 years:
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 4 of 9

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 

LOC? 

Yes 

6. B. Any problems 

encountered?

None, such problems are precluded by our LOC format. 

7. A. Payment ever refused? Our LOC precludes refusal since we have a judgment clause 

against the bank.

7. B. Reasons/resolutions 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 

QUESTIONS RESPONSES

1. Accept LOC? Kentucky accepts 4 types of reclamation bonds, they are 

surety, certificates of deposit, letters of credit and cash. 

2. A. Amt held in LOC: $ 66,384,616.20 as of 1/24/91 

2. B. Pct of total bond liability: See next item.

2. C. Amt & pct of bonding Surety: $728,083,532 

forms: Certificates of Deposit: $ 13,382,008 

Cash: $ 0 [ 0% ] 

Letters of Credit: $ 66,384,616 

Self Bonds: $ 0 [ 0% ] 

Other (Bond Pool): $ 12,128,830 

3. Pct LOC increased/decreased Use of this form of reclamation bond has been about the 

in last 5 years: 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 

in-state bank, on an out of state bank's LOC. 

a confirming 

6. A. Demanded payment on Yes 

LOC? 

6. B. Any problems On occasion, bank does not have collateral. 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 5 of 9

encountered?

7. A. Payment ever refused? Yes

7. B. Reasons/resolutions 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 Copy of Kentucky bonding regulations are attached. 

differences:

LOUISIANA 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 787,950.50 

2. B. Pct of total bond liability: 5%

2. C. Amt & pct of bonding 

forms:

Surety: $ 16,085,083 [ 95% ]

Certificates of Deposit: $ 0 [ 0% ]

Cash: $ 0 [ 0% ] 

Letters of Credit: $ 89,950 [ 5% ] 

Self Bonds: $ 0 [ 0% ] 

Other (Bond Pool): $ 0 [ 0% ] 

3. Pct LOC increased/decreased 

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. Any problems 

encountered?

N/A 

7. A. Payment ever refused? No

7. B. Reasons/resolutions N/A 

8. State/federal regulation 

differences:

Attached. 

MARYLAND 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 1,084,400

2. B. Pct of total bond liability: 12% 

2. C. Amt & pct of bonding Surety: $ 5,558,730 [ 63% ]
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 6 of 9

forms: 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. Pct LOC increased/decreased Maryland did not accept LOC prior to 5 years ago. 

in last 5 years: Therefore, percentage has gone from zero to 12%.

4. Term for LOC bonds: Life of permit (see attached regulation) 

5. Require confirmation (back Will accept LOC from banks out of state. 

up) of LOC:

6. A. Demanded payment on Yes 

LOC? 

6. B. Any problems No real problem. Bank was just slow. 

encountered?

7. A. Payment ever refused? No

7. B. Reasons/resolutions N/A

8. State/federal regulation See attached Maryland regulation.

differences:

NEW MEXICO 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 53,431,980 

2. B. Pct of total bond liability: 48% 

2. C. Amt & pct 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. Pct LOC increased/decreased 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. Any problems encountered? N/A 

7. A. Payment ever refused? No

7. B. Reasons/resolutions N/A

8. State/federal regulation 

differences:

Regulations attached. 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 7 of 9

OHIO 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 14,530,000

2. B. Pct of total bond liability: 4.7% 

2. C. Amt & pct 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. Pct LOC increased/decreased in 1986 LOC = 7.1% of bond deposited

last 5 years: 1990 LOC = 26.8% of bond deposited 

4. Term for LOC bonds: None

5. Require confirmation (back up) No

of LOC:

6. A. Demanded payment on LOC? Yes 

6. B. Any problems encountered? None 

7. A. Payment ever refused? No

7. B. Reasons/resolutions N/A

8. State/federal regulation See attached.

differences:

OKLAHOMA 

QUESTIONS RESPONSES

1. Accept LOC? Yes

2. A. Amt held in LOC: $ 7,606,034

2. B. Pct of total bond liability: 16.7% 

2. C. Amt & pct 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. Pct LOC increased/decreased in LOC bonding has increased from 6.62% in 1986 to 

last 5 years: 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. 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 8 of 9

5. Require confirmation (back up) 

of LOC:

No

6. A. Demanded payment on LOC? Yes 

6. B. Any problems encountered? None 

7. A. Payment ever refused? No

7. B. Reasons/resolutions N/A

8. State/federal regulation 

differences:

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 

QUESTIONS RESPONSES

1. Accept LOC? No

2. A. Amt held in LOC: N/A

2. B. Pct of total bond liability: N/A 

2. C. Amt & pct 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 bond): $ 251,745 

3. Pct LOC increased/decreased 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. Any problems encountered? N/A 

7. A. Payment ever refused? N/A

7. B. Reasons/resolutions N/A

8. State/federal regulation 

differences:

N/A

VIRGINIA 

QUESTIONS RESPONSES

1. Accept LOC? No

2. A. Amt held in LOC: N/A

2. B. Pct of total bond liability: N/A

2. C. Amt & pct of bonding forms: Surety: $ 151,600,960 [ 96.84% ]

Certificates of Deposit: $ 4,903,600 [ 3.13% ] 

Cash: $ 46,600 [ 0.03% ]
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Survey conducted by: IMCC

Survey responses compiled by: Joyce Zweben Scall

Page 9 of 9

Letters of Credit: $ 0 [ 0% ]

Self Bonds: $ 0 [ 0% ] 

Other: $ 0 [ 0% ] 

3. Pct LOC increased/decreased in N/A

last 5 years:

4. Term for LOC bonds: N/A 

5. Require confirmation (back up) N/A

of LOC:

6. A. Demanded payment on LOC? N/A 

6. B. Any problems encountered? N/A 

7. A. Payment ever refused? N/A

7. B. Reasons/resolutions N/A

8. State/federal regulation N/A

differences:

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