1. (1) The use of LOC by a QPD will be subject to the provisions and requirements of the SAFE Program Act, Rules and any additional requirements, conditions and limitations prescribed by the Treasurer.

2. (2) Each LOC issued and delivered to the Treasurer shall;

   1. (a) Be irrevocable and unconditional;
   2. (b) Provide that the issuer of the letter of credit shall notify the Treasurer in writing not less than sixty (60) calendar days prior to the final maturity date that the issuer has elected not to extend the expiration date for an additional period;
   3. (c) Permit multiple and partial drawings; and
   4. (d) Shall otherwise be in a standard FHLB form approved by the Treasurer.
   5. (e) The Treasurer may obtain certificates of incumbency from each LOC issuer periodically to verify the signature authority of officers who execute LOC.
3. (3) Changes in the terms of a current LOC shall be made in the form of an amendment. All amendment decreases to the LOC amount shall be subject to the prior written approval or disapproval of the Treasurer. No amendment decrease shall be effective until written approval by the Treasurer has been obtained. The QPD shall be responsible to make appropriate application to the LOC issuer for any amendment approved by the Treasurer. Amendments will be effective once received from the LOC issuer and attached to the original LOC.

4. (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 LOC held by the Treasurer at any time prior to the expiration of the LOC if the Treasurer, in his or her discretion, determines that it is necessary to draw on the LOC, including by way of example but not limited to, upon any of the following:

   1. (a) Any Default or Insolvency, as defined in Section 41-14A-2(7) of the Code of Ala. 1975, shall occur with respect to the QPD;
   2. (b) The QPD violates or fails to comply with 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;
   3. (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;
   4. (d) The QPD fails to have on deposit with the Treasurer Required Collateral;
   5. (e) The Treasurer receives notification from the LOC issuer that it will not extend the expiration date for an additional term as provided in the initial LOC; or
   6. (f) 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, (b) notification of application for a new LOC or (c) other Eligible Collateral.
5. (5) No substitution of any LOC for other Eligible Collateral shall be effective until the Treasurer has received the properly executed LOC or approved amendment to an existing LOC. No substitution of any Eligible Collateral for any LOC shall be effective until Custodian has acknowledged to the Treasurer in writing the Custodian’s receipt of the substitute collateral.

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.

Editor’s Note: Rule 892-X-1-.18 was renumbered to Rule 892—X-1-.19 as per certification filed January 19, 2006; effective February 23, 2006.

History: 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. Amended: Filed October 3, 2011; effective November 7, 2011.