State of California Department of Industrial Relations Self Insurance Plans 2265 Watt Avenue, Suite 1 Sacramento, CA 95825 Phone (916) 483-3392 FAX (916) 483-1535 Page 1 INFORMATION BULLETIN: LETTER OF CREDIT California Labor Code Section 3701 permits deposit of an Irrevocable Letter of Credit as an alternative security deposit. However, Self Insurance Plans retains discretion under California Code of Regulations, Title 8, Section 15215 to determine in each particular case if a Letter of Credit as written is acceptable deposit and if the bank posting it is acceptable. Section 15215 requires an irrevocable letter of credit to be issued by: 1. A State of California chartered bank or savings institution; or 2. A federally chartered bank or savings institution; or 3. Any other foreign or domestic bank or savings institution; or 4. A group (syndication) of domestic or foreign banks or savings institutions. The issuing bank or savings institution, in any event, shall have at the time of issuance of the letter of credit an acceptable credit rating as set forth below: 1. An “Aaa,” “Aa,” or “A” long term certificate of deposit (CD) rating for the bank or savings institution in the current 1. monthly edition of Moody’s Statistical Handbook prepared by Moody’s Investors Service, Inc., New York; or 2. An “AAA,” “AA,” or “A” long term certificate of deposit (CD) rating for the bank or savings institution in the current 2. quarterly edition or monthly supplement of Financial Institutions Ratings prepared by Standard and Poor’s 2. Corporation, New York; or 3. An “AAA,” “AA+,” or “AA” credit quality rating for the issuing financial institution along with a CD/Debt Credit 3. Limit Code above the dollar amount of the letter of credit, as well as a Credit Limit Maturity Code of “a, b, c or 3. d” in the current annual edition of GFI Credit Ratings or the latest monthly GFI Bank Letter supplement thereto. Note: Federally chartered instrumentalities of the United States operating under authority of the Farm Credit Act of Note: 1971, as amended, are not rated and are acceptable without a rating. If a bank’s or savings institution’s rating subsequent to the issuance of the letter of credit falls below the acceptable rating level, the Manager of Self Insurance Plans shall require the letter of credit to be replaced or confirmed by a bank with an acceptable rating within 60 days of the publication of the lower credit rating. In the event of a split rating, the lowest published rating will be used. Letters of credit issued by a financial institution or syndication of financial institutions that does not meet the credit rating level set forth above at the time of issuance shall be accepted by the Manager with a confirming letter of credit issued by a financial institution meeting the credit rating criteria. The confirming letter of credit shall state that the confirming financial institution is primarily obligated to pay on demand the full amount of the letter of credit regardless of reimbursement from the financial institution whose letter of credit is being confirmed. Advising letters of credit will not be accepted. Section 15215 requires the letter of credit to include the following provisions: 1. The letter of credit will be automatically extended without amendment for an additional one year from the expiry 1. date or any future expiry date, unless at least 45 days before the expiry date the Manager is notified in writing by 1. the financial institution that the letter of credit will not be renewed; 2. The letter of credit can be called if the self insurer fails to pay its workers’ compensation liabilities; or the self 2. insurer files bankruptcy; or the self insurer fails to renew or substitute acceptable security by ten days prior to the 2. expiry date of the letter of credit; or any combination of these events; 3. The letter of credit is not subject to any qualification or condition by the issuing or confirming financial institution 3. and is the financial institution’s individual obligation which is in no way contingent upon reimbirsement; 4. Payment of any amount under the letter of credit shall be by wire transfer to an account of the State of California, 4. Department of Industrial Relations at a designated bank; 5. All letters of credit issued by financial institutions shall include a statement that if legal proceedings are initiated 5. by any party with respect to the payment of any letter of credit, it is agreed that such proceedings shall be subject 5. to the jurisdiction of California courts and administrative agencies and subject to California law; and 6. Letters of credit will be subject to the Uniform Customs and Practice for Documentary Credits, 1993 Revision, 6. ICC Publication No. 500. A model letter of credit which meets all language requirements is on the following pages. 2001 © American LegalNet, Inc. Page 2 Model Letter of Credit Issuing Bank Name/Address: Irrevocable Standby Letter of Credit Date and Place of Issue: Expiry Date and Place for Presentation of Documents: Date: Expiry Date: Place: Place for Presentation: Applicant Name/Address: Beneficiary: Self Insurance Plans State of California 2265 Watt Avenue, Suite 1 Sacramento, CA 95825 Advising Bank Name/Address: Reference No.: Amount: U.S. $ Credit Available With: (spell out amount in U.S. dollars) by payment at sight against presentation of the (name of bank) documents detailed below and your draft(s) during normal business hours at: drawn on: Number: (branch of bank) at the request and for the account of the following named parties: (name of bank) (enter legal name of self insurer and subsidiaries to be covered) the undersigned issuing bank hereby establishes in your favor this irrevocable letter of credit in the amount of U.S. Dollars: $ payable within 3 business days (as hereinafter defined) after presentation to: of demand(s) for payment in the form described above. (name/address of bank) Drawings honored by the issuing bank under this letter of credit shall not, in the aggregate, exceed the total amount of credit set forth above and each drawing honored by the issuing bank shall reduce the amount set forth pro tanto. Partial drawings are permitted. Documents Required: 1. A signed beneficiary’s statement executed by the Director of the California Department of Industrial Relations and/or the 1. Manager of Self Insurance Plans that (name of self insurer and self insured subsidiaries) has done any of the following: (A) failed to pay its workers’ compensation obligations; (B) filed for bankruptcy; and/or (C) failed to renew or substitute acceptable security for workers’ compensation liabilities by ten (10) days before (C) the expiration date of this letter of credit. 2. A draft signed by the Manager of Self Insurance Plans for the amount of the drawing requested under this letter of credit and 2. including a reference to the letter of credit number and original date of issue of this letter of credit; and 3. The original letter of credit documents and all amendments thereto and any confirming bank’s original letter of credit 3. document and all amendments thereto. Note: A draft accompanied by a statement indicating that named self insurer and/or subsidiaries listed in paragraph 1 Note: under “Documents Required” has failed to renew or substitute acceptable security for workers’ compensation Note: liabilities by ten (10) days before the expiration date of this letter of credit may not be presented to the issuer of this Note: letter of credit earlier than ten (10) calendar days before the expiration date of the letter of credit. 2001 © American LegalNet, Inc. Page 3 Extension of Expiration Date (Evergreen Clause): The expiration date of this letter of credit will be automatically extended for an additional period of one (1) year from the present or each future expiration date, unless not less than forty-five (45) days prior to such date the issuing bank notifies beneficiary in writing sent by registered mail or overnight delivery service to the address above, the issuing bank elects not to so renew the credit. Payment by Wire Transfer Only: Payment of any amount under this letter of credit by the issuing or a confirming bank shall be made by wire transfer to Bank of America, Arden-Morse Branch, Sacramento, California for deposit to the account of the State of California, Department of Industrial Relations, Account No. 01482-80005. Legal Proceedings: If legal proceedings are initiated by any party with respect to the payment of the letter of credit, the issuing bank agrees that such proceedings shall be subject to the jurisdiction of California courts and administrative agencies and subject to California law. Miscellaneous Provisions: 1. Except as stated herein, this Irrevocable Letter of Credit is not subject to any condition or qualification and is the 1. issuing bank’s individual obligation which is in no way contingent upon reimbursement. 2. We hereby issue this Documentary Credit in your favor. It is subject to the Uniform Customs and Practice for 2. Documentary Credits, 1993 revision, ICC Publication No. 500, and engages us in accordance with the terms 2. thereof. The number and the date of the credit and the name of our Bank must be quoted on all draft required. This document consists of Authorized countersignature signed page(s). Authorized signature 2001 © American LegalNet, Inc.