Section 12.309 - Terms and Conditions of the Bond(a) Amount of bond. The performance bond shall be in an amount determined by the Commission as provided in § RSA 12.304 of this title (relating to Determination of Bond Amount).(b) Payee. The performance bond shall be payable to the Commission.(c) Performance requirement. The performance bond shall be conditioned upon faithful performance of all of the requirements of the Act, this chapter (relating to Coal Mining Regulations), and the conditions of the permit.(d) Time period of bond. The duration of the bond shall be for the time period provided in § RSA 12.306 of this title (relating to Period of Liability).(e) Bonding bank and surety company requirements. (1) The bond shall provide a mechanism for a bond or surety company to give prompt notice to the Commission and the permittee of any action filed alleging the insolvency or bankruptcy of the surety company or the bank or alleging any violation which would result in suspension or revocation of the surety or bank's charter or license to do business; and(2) Upon the incapacity of a bank or surety company by reason of bankruptcy, insolvency or suspension, or revocation of its charter or license, the permittee shall be deemed to be without bond coverage. The Commission shall issue a notice to any operator who is without bond coverage and shall specify a reasonable period to replace bond coverage, not to exceed 90 days.(f) Surety bonds. Surety bonds shall be subject to the following conditions: (1) the bond shall be executed by the operator and a corporate surety licensed to do business in the state where such operation is located; and(2) surety bonds shall be non-cancellable during their term.(g) Letters of credit. Letters of credit shall be subject to the following conditions: (1) the letter may only be issued by a bank organized or authorized to do business in the U.S.;(2) letters of credit must be irrevocable during their terms. A letter of credit used as security in areas requiring continuous bond coverage shall be forfeited and shall be collected by the Commission if not replaced by another suitable bond or letter of credit at least 30 days before its expiration date; and(3) the letter must be payable to the Commission in part or in full upon demand and receipt from the Commission of a notice of forfeiture issued in accordance with §§12.314 through 12.317 of this title (relating to Performance Bond Forfeitures Criteria and Procedures).(h) Collateral Bonds. Real and personal property posted as a collateral bond shall meet the following criteria: (1) the applicant shall grant the Commission a mortgage or perfected first-lien security interest in real or personal property with a right to sell or otherwise dispose of the property in the event of forfeiture under §§12.314 through 12.317 of this title (relating to Performance Bond Forfeitures Criteria and Procedures);(2) in order for the Commission to evaluate the adequacy of the property offered to satisfy this requirement, the applicant shall submit a schedule of the real or personal property which shall be pledged to secure the obligations under the indemnity agreement. The list shall include: (A) a description of the property;(B) the fair market value as determined by an appraisal conducted by an appraiser authorized by the Commission; and(C) proof of possession and title to the real property; and(3) the property may include land which is part of the permit area; however, land pledged as security shall not be mined under any permit.(i) Escrow bonding. (1) The Commission may authorize the operator to supplement the bond through the establishment of an escrow account deposited in one or more accounts payable on demand only to the Commission or deposited with the Commission directly. The total bond, including the escrow amount, shall not be less than the amount required under terms of performance bonds, including any adjustments, less amounts released in accordance with release of performance bonds.(2) Interest paid on an escrow account shall be retained in the escrow account and applied to the bond value of the escrow account unless the Commission has approved that the interest be paid to the operator.(3) Certificates of deposit may be substituted for escrow accounts upon approval of the Commission.(j) Self-bonding. (1) Definitions. For the purposes of this subsection only: (A) Current assets--Cash or other assets or resources which are reasonably expected to be converted to cash or sold or consumed within one year or within the normal operating cycle of the business.(B) Current liabilities--Obligations which are reasonably expected to be paid or liquidated within one year or within the normal operating cycle of the business.(C) Fixed assets--Plants and equipment, but does not include land or coal in place.(D) Governmental entity--Municipal corporation, political subdivision, or public agency of the State of Texas.(E) Liabilities--Obligations to transfer assets or provide services to other entities in the future as a result of past transactions.(F) Net worth--Total assets minus total liabilities and is equivalent to owner's equity.(G) Self-bond--An indemnity agreement in a sum certain executed by a qualified applicant, or by an applicant and its qualified third-party guarantor, and made payable to the Commission, with or without separate surety.(H) SIC code--The standard industrial classification used by Dun and Bradstreet Corporation to identify various industry groups such as electric utility companies. Data identified by SIC code are to be the current data for the last annual period compiled and reported by Dun and Bradstreet Corporation.(I) Tangible net worth--Net worth minus intangibles such as goodwill and rights to patents or royalties.(2) Requirements for a business and governmental entities. The Commission may accept a self bond from an applicant that is a business or governmental entity if all of the following conditions are met by the applicant: (A) the applicant designates a suitable agent to receive service of process in this state;(B) the applicant has been in continuous operation for a period of not less than 5 years immediately preceding the date of application . (i) The Commission may allow a joint venture or syndicate with less than 5 years of continuous operation to qualify under this requirement, if each member of the joint venture or syndicate has been in continuous operation for at least 5 years immediately preceding the date of application.(ii) When calculating the period of continuous operation, the Commission may exclude past periods of interruption of the operation of the entity that were beyond the applicant's control and do not affect the applicant's likelihood of remaining in business during the proposed surface coal mining and reclamation operations;(C) the applicant submits financial information in sufficient detail to show that the applicant meets one or more of the following criteria: (i) the applicant has a current rating for its most recent bond issuance of "A" or higher as issued by either Moody's Investor Service or Standard and Poor's Corporation;(ii) the application has a tangible net worth of at least $10 million, a ratio of total liabilities to net worth of 2.5 times or less, and a ratio of current assets to current liabilities of 1.2 times or greater; or(iii) the applicant's fixed assets in the United States total at least $20 million, and the applicant has a ratio of total liabilities to net worth of 2.5 times or less, and a ratio of current assets to current liabilities of 1.2 times or greater; or(iv) the applicant has an investment-grade rating for its most recent bond issuance of "Baa3" or higher from Moody's Investor Service and "BBB-" or higher from Standard and Poor's Corporation, and meets the requirements of either subclause (I) or (II) of this clause. If the applicant or the guarantor of a self-bond receives an investment rating or notification of an investment rating by Moody's Investor Service or Standard and Poor's Corporation of any of its bonds lower than the rating included in the application as a bond approval criterion existing at time of Commission approval of its application for self-bonding, the guarantor and permittee receiving such rating shall promptly notify the Commission, which shall immediately hold a hearing to consider and determine the adequacy of the guarantor's self-bond. The limitation contained in subclause (II)(-c-) of this clause applies only to applicants or guarantors qualifying pursuant to subclause (II) of this clause, and does not affect the limitation set out in paragraph (4)(A) of this subsection for applicants or guarantors seeking acceptance of a self-bond pursuant to clauses (i) - (iii) or (iv)(I) of this subparagraph. (I) The applicant: (-a-) has a tangible net worth of at least $10 million and fixed assets in the United States totaling at least $20 million; and(-b-) has a ratio of total liabilities to net worth of 2.5 or less; or a ratio of total liabilities to net worth that is equal to or less than the industry median reported by Dun and Bradstreet Corporation for the applicant's primary SIC code; and(-c-) has a ratio of current assets to current liabilities that is equal to or greater than the industry median reported by Dun and Bradstreet Corporation for the applicant's primary SIC code; or the applicant has a current credit rating of "4A2" or higher from Dun and Bradstreet Corporation; or(II) The applicant: (-a-) has a net worth of at least $100 million and fixed assets in the United States totaling at least $200 million; and(-b-) has issued and currently has outstanding securities pursuant to the provisions of the Securities Act of 1933 and is subject to the periodic financial reporting requirements established by the Securities and Exchange Act of 1934; and(-c-) has a total amount of outstanding and proposed self-bonds for surface coal mining and reclamation operations not exceeding 16 2/3 percent of the applicant's net worth in the United States; and(D) the applicant submits: (i) financial statements for the most recently completed fiscal year accompanied by a report prepared by an independent certified public accountant in conformity with generally accepted accounting principles and containing the accountant's audit opinion or review opinion of the financial statements with no adverse opinion;(ii) unaudited financial statements for completed quarters in the current fiscal year; and(iii) additional information as may be requested by the Commission.(3) Requirements for a third-party guarantee. The Commission may accept a self-bond from an applicant and the applicant's qualified third-party guarantor if the guarantor meets the conditions of paragraph (2)(A), (B), (C) and (D) of this subsection as if it were the applicant and the applicant meets the conditions of paragraph (2)(A), (B) and (D) of this subsection. Such a written guarantee shall be referred to as a "third-party guarantee." The terms of the third-party guarantee shall provide for the following: (A) if the applicant fails to complete the reclamation plan, the guarantor shall do so or the guarantor shall be liable under the indemnity agreement to provide funds to the Commission sufficient to complete the reclamation plan, but not to exceed the bond amount;(B) the third-party guarantee shall remain in force unless the guarantor sends notice of cancellation by certified mail to the applicant and to the Commission at least 90 days in advance of the cancellation date, and the Commission accepts the cancellation.(C) the cancellation may be accepted by the Commission if the applicant obtains suitable replacement bonding in accordance with § RSA 12.310 of this title (relating to Replacement of Bonds) before the cancellation date or if the lands for which the self-bond, or portion thereof, was accepted have not been disturbed.(4) Limitations. (A) For the Commission to accept an applicant's self-bond, the total amount of the outstanding and proposed self-bonds of the applicant for surface coal mining and reclamation operations shall not exceed 25 percent of the applicant's tangible net worth in the United States.(B) For the Commission to accept a third-party guarantee, the total amount of the guarantor's present and proposed self-bonds and guaranteed self-bonds for surface coal mining and reclamation operations shall not exceed 25 percent of the guarantor's tangible net worth in the United States.(5) Indemnity agreement. If the Commission accepts an applicant's self-bond, an indemnity agreement shall be submitted subject to the following requirements: (A) the indemnity agreement shall be executed by all persons and parties who are to be bound by it, including the third-party guarantor, and shall bind each jointly and severally;(B) applicants applying for a self-bond and third-parties guaranteeing an applicant's self-bond shall submit an indemnity agreement signed by two officers who are authorized to bind the applicant and third-party guarantor. A copy of such authorization shall be provided to the Commission with an affidavit certifying that such an agreement is valid under all applicable state and federal laws. Whenever the applicant or third-party guarantor is a corporation, each respective corporation shall provide a copy of the corporate authorization demonstrating that the corporation may guarantee the self-bond and execute the indemnity agreement;(C) if the applicant is a partnership, joint venture or syndicate, the agreement shall bind each partner or party who has a beneficial interest, directly or indirectly, in the applicant;(D) pursuant to § RSA 12.314 of this title (relating to Forfeiture of Bonds), the applicant or third-party guarantor shall be required to complete the approved reclamation plan for the lands in default or to pay to the Commission an amount necessary to complete the approved reclamation plan, not to exceed the bond amount; and(E) when under forfeiture and when necessary to enforce the provisions of the Act and these regulations, the indemnity agreement shall be referred by the Commission to the Attorney General to obtain a judgement as provided by law;(6) Current financial information. An applicant that is self-bonded under this section shall submit to the Commission an update of the information required under paragraph (2)(C) and (D) of this subsection within 90 days after the close of each fiscal year following the issuance of the self-bond or corporate guarantee. When a self-bond is guaranteed by a third-party guarantor, both the applicant and its third-party guarantor shall comply with this paragraph.(7) Substitute bonding. If at any time during the period when a self-bond is in effect, the financial conditions of the applicant or the third-party guarantor change so that the criteria of paragraph (2)(C) and (D) of this subsection are not satisfied, the permittee shall notify the Commission immediately and shall submit an alternate form of bond in the same amount as the self-bond. It is the intent of the Commission that substitute bonds under this paragraph be timely filed in order that they may be reviewed and acted upon by the Commission within a reasonable time, not to exceed 90 days, from the date of notification. Should the permittee fail to post an adequate substitute bond as required by this paragraph, the permittee shall cease coal extraction and shall immediately begin to conduct reclamation operations in accordance with the reclamation plan. Mining operations shall not resume until the Commission has determined that an acceptable bond has been posted.(k) Combined surety/escrow bonding. The Commission may accept a combined surety/escrow bonding schedule provided that: (1) a surety bond payable to the Commission is posted in the amount determined under § RSA 12.304 of this title (relating to Determination of Bond Amount) for reclamation of each successive increment;(2) an interest-bearing escrow account payable to the Commission with a predetermined deposit amount and frequency is established;(3) the amount of the surety bond shall always be sufficient to cover the difference between the escrow balance and the total reclamation cost;(4) the terms and conditions of the escrow account shall be developed jointly by the operator, surety and Commission. Deposits to the escrow account by the operator shall be made periodically and so reported to the Commission. Failure to make deposits on schedule shall be just cause for action by the Commission; and(5) a certified escrow account balance statement shall be provided periodically to the surety and the Commission.(l) Persons with an interest in collateral posted as a bond, and who desire notification of actions pursuant to the bond, shall request the notification in writing to the Commission at the time collateral is offered.16 Tex. Admin. Code § 12.309
The provisions of this §12.309 adopted to be effective April 7, 1997, 22 TexReg 3093; amended to be effective December 29, 1998, 23 TexReg 13041; amended to be effective November 12, 2007, 32 TexReg 8124; Amended by Texas Register, Volume 42, Number 16, April 21, 2017, TexReg 2168, eff. 4/25/2017