(a) A provider shall satisfy its liquid reserve obligation with qualifying assets. Qualifying assets are:
(1) Cash.
(2) Cash equivalents as defined in paragraph (4) of subdivision (c) of Section 1771.
(3) Investment securities, as defined in paragraph (2) of subdivision (i) of Section 1771.
(4) Equity securities, including mutual funds, as defined in paragraph (7) of subdivision (e) of Section 1771.
(5) Lines of credit and letters of credit that meet the requirements of this paragraph. The line of credit or letter of credit shall be issued by a state or federally chartered financial institution approved by the department or whose long-term debt is rated in the top three long-term debt rating categories by either Moody’s Investors Service, Standard and Poor’s Corporation, or a recognized securities rating agency acceptable to the department. The line of credit or letter of credit shall obligate the financial institution to furnish credit to the provider.
(A) The terms of the line of credit or letter of credit shall at a minimum provide both of the following:
(i) The department’s approval shall be obtained by the provider and communicated in writing to the financial institution before any modification.
(ii) The financial institution shall fund the line of credit or letter of credit and pay the proceeds to the provider no later than four business days following written instructions from the department that, in the sole judgment of the department, funding of the provider’s minimum liquid reserve is required.
(B) The provider shall provide written notice to the department at least 14 days before the expiration of the line of credit or letter of credit if the term has not been extended or renewed by that time. The notice shall describe the qualifying assets the provider will use to satisfy the liquid reserve requirement when the line of credit or letter of credit expires.
(C) A provider may satisfy all or a portion of its liquid reserve requirement with the available and unused portion of a qualifying line of credit or letter of credit.
(6) For purposes of satisfying all or a portion of a provider’s debt service reserve requirement described in Section 1792.3, restricted assets that are segregated or held in a separate account or escrow as a debt service reserve under the terms of the provider’s long-term debt instruments are qualifying assets, subject to all of the following conditions:
(A) The assets are restricted by the debt instrument so that they may be used only to pay principal, interest, and credit enhancement premiums.
(B) The provider furnishes to the department a copy of the agreement under which the restricted assets are held and certifies that it is a correct and complete copy. The provider, escrow holder, or other entity holding the assets must agree to provide to the department any information the department may request concerning the debt service reserve it holds.
(C) The market value, or guaranteed value, if applicable, of the restricted assets, up to the amount the provider must hold as a debt reserve under Section 1792.3, will be included as part of the provider’s liquid reserve.
(D) The restricted assets described in this paragraph will not reduce or count towards the amount the provider must hold in its liquid reserve for operating expenses.
(7) For purposes of satisfying all or a portion of a provider’s operating expense reserve requirement described in Section 1792.4, restricted assets that are segregated or held in a separate account or escrow as a reserve for operating expenses, are qualifying assets subject to all of the following conditions:
(A) The governing instrument restricts the assets so that they may be used only to pay operating costs when operating funds are insufficient.
(B) The provider furnishes to the department a copy of the agreement under which the assets are held, certified by the provider to be a correct and complete copy. The provider, escrow holder, or other entity holding the assets shall agree to provide to the department any information the department may request concerning the account.
(C) The market value, or the guaranteed value, if applicable, of the restricted assets, up to the amount the provider is required to hold as an operating expense reserve under Section 1792.4, will be included as part of the provider’s liquid reserve.
(D) The restricted assets described in this paragraph shall not reduce or count towards the amount the provider is required to hold in its liquid reserve for long-term debt.
(b) Except as otherwise provided in this subdivision, the assets held by the provider as its liquid reserve may not be subject to any liens, charges, judgments, garnishments, or creditors’ claims and may not be hypothecated, pledged as collateral, or otherwise encumbered in any manner. A provider may encumber assets held in its liquid reserve as part of a general security pledge of assets or similar collateralization that is part of the provider’s long-term capital debt covenants and is included in the provider’s long-term debt indenture or similar instrument.
(Repealed and added by Stats. 2000, Ch. 820, Sec. 57.25. Effective January 1, 2001.)