(a) Amount of bond. The performance bond shall be in an amount determined by the Commission as provided in §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 §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 Cont'd...