Letters of Credit

PURPOSE: This rule sets forth guidelines for the submission, acceptance of, and proceedings upon a bank letter of credit that has been submitted in lieu of a Missouri grain warehouse bond. (1) A letter of credit issued by a commercial bank chartered under the laws of Missouri, or any state, or chartered pursuant to the National Banking Act, Title 12 U.S.C. may be submitted to the Missouri Department of Agriculture in lieu of a Missouri grain warehouse bond as required by sections 411.010–411.800, RSMo, provided that the commercial bank adopts and adheres to the rules enumerated in the International Chamber of Commerce publication UCP-600 pertaining to letters of credit and issues those letters in conformity with Article V of the Uniform Commercial Code, section 400.5-101, RSMo. The letter of credit must be in an amount equal to the otherwise required bond. (2) The letter of credit shall be irrevocable and the beneficiary shall be the Missouri Department of Agriculture. Payment shall be made immediately upon presentment of a sight draft(s) or a letter of demand signed by the director of agriculture or his/her designated representative without accompanying supporting documentation. (3) All letters of credit shall conform to a required format, unless waived in writing by the director of agriculture. A standard letter of credit form embodying the required format shall be made available upon the request of any licensee or prospective licensee. Forms may be obtained by directing an inquiry to the Division of Grain Inspection and Warehousing, Missouri Department of Agriculture, P.O. Box 630, Jefferson City, MO 65102 or by telephone at 573-751-4112. (4) A sight draft or letter of demand upon a letter of credit may be presented for payment only upon the reasons that bond proceeds may be demanded for disbursement and shall apply to all claims whenever arising. (5) Letters of credit shall have a term of one (1) year which shall be renewable automatically for additional one- (1-) year terms. A letter of credit may be revoked by the licensee or issuer only at its expiration date by giving the Department of Agriculture at least ninety (90) days written notice, by certified mail, prior to a renewal date. Notice is not deemed sufficiently given unless the director of agriculture receives the cancellation notice in writing, by certified mail, at least ninety (90) days prior to the renewal date of the letter of credit. Upon the timely receipt of this notice, the licensee shall be required to arrange for substitution of a suitable bond or certificate of deposit (CD) at least sixty (60) days prior to the expiration of the letter of credit. If satisfactory evidence of these arrangements is not timely received, the director shall proceed in accordance with the provisions of section 411.275, RSMo. (6) If a licensee desires to surrender its license and requests the release of a letter of credit, the licensee must return its grain warehouse license and make written request by registered mail or certified mail with return receipt for the release of the letter of credit. Upon receipt of the written request and the submission of the grain warehouse license, the director shall hold the letter of credit until the director is satisfied that no claims exist, which may include a minimum ninety- (90-) day holding period, before notice of release is transmitted to the issuer. (7) In the event that a licensee desires to substitute a bond for a letter of credit then in possession of the director of agriculture, the letter of credit shall remain in force for a period of ninety (90) days following the later of the effective date of the bond or the date the bond is received by the director. A substitute bond shall be considered as received by the director when the bond is actually received or when a binding verbal commitment for a substitute bond has been accepted by the director. The director may retain the letter of credit beyond ninety (90) days for such time as may be required to fully ascertain the existence of any claims. After that, notice of release shall be transmitted to the issuer of the letter of credit. (8) In the event that a licensee desires to substitute a CD for a letter of credit, the director shall transmit a release to the issuer of the credit letter upon receipt and authentication of the CD. (9) In the event that a plurality of letters of credit from any number of issuers are presented in satisfaction of a licensee’s bonding obligation, the director may satisfy claims under the Missouri Grain Warehouse Law by presentment of sight drafts or letter of demand against one (1) or more letters of credit, without regard to proration. (10) A licensee shall be required to augment letters of credit in any situation where it would be required to increase its coverage under a bond; this augmentation shall be commensurate to the increased bond value required. In the event of a decreased bond requirement, a new letter of credit for the lesser amount may be substituted for a prior letter upon the renewal date of the letter of credit or at that time as approved by the director. (11) If the decrease in bond requirement is due to a decrease in storage capacity, a minimum ninety- (90-) day bonding period may be required from the date of the amendment audit before a decreased letter of credit will be accepted. (12) If the decrease in bond requirement is due to an increase in net worth, a minimum ninety- (90-) day bonding period may be required from the date the improved net worth is accepted by the director. (13) Licensees or prospective licensees may present any combination of CDs, letters of credit, and bonds in satisfaction of its bonding requirement under this chapter; however, in making disbursements for claims, the director shall liquidate the CDs first, draw upon the letters of credit second, and make demand upon the bond(s) third. (14) When the director has made written demand for payment of a letter of credit, the letter shall be considered paid if the issuing bank pays the sum demanded to the director within three (3) days of the bank’s receipt of that demand, or if the issuing bank deposits the sum demanded in an escrow account solely in the name of the director at a bank designated by the director within three (3) days of the bank’s receipt of that demand. Deposit of the sum demanded in this escrow account shall not constitute refusal or failure of the issuing bank to pay the sum demanded to the director and shall prevent a penalty assessment for refusal or failure to pay the sum demanded to the director. When the sum demanded is deposited in this escrow account, the funds shall remain in the escrow account until the liability of the bank has been determined in accordance with Chapter 411, RSMo. In the event that a penalty assessment is necessary in accordance with Chapter 411, RSMo, the penalty assessment shall begin on the fourth day following the date of the bank’s receipt of written demand for payment by the director and shall be assessed at the rate of one-seventh (1/7) of a week for each day of delay. AUTHORITY: sections 411.070(2) and 411.277, RSMo 2000.* Emergency rule filed April 15, 1986, effective April 25, 1986, expired Aug. 23, 1986. Original rule filed May 2, 1986, effective Aug. 25, 1986. Amended: Filed March 16, 1988, effective June 27, 1988. Amended: Filed Oct. 25, 1999, effective June 30, 2000. Amended: Filed Dec. 29, 2015, effective June 30, 2016. *Original authority 411.070(2), RSMo 1941, amended 1955, 1965, 1977, 1980, 1986, 1993, 1995, 1997; and 411.277.1, rsmo 1986, amended 1987, 1993, 1995, 1997.