Another FIA Surety Success Story!
The Situation: Never been bonded before, but this 50+ y.o. company needs a multi-million dollar Performance and Payment Bond.
Issues:
- Public contract owner but the bid results were confidential.
- Turnkey contract, includes design exposure.
- The work has started.
- The founder / stockholder is retiring in a few months – including a stock buyout. Can the company operate successfully under new management?
- The major stockholder is unwilling to give personal indemnity. “I never had to give it before.” (Never bonded) “I’m not gonna do it now, just as I’m leaving!”
- How will the buyout affect the company’s financial position? The buyout is scheduled for after the bond is issued and the contract will be incomplete.
- The minority owners / spouses are hesitant to give unlimited personal indemnity. Their ownership is under 5%. (I get it!)
- Never bonded before, only have internal company financial statements.
- The client was under pressure from the obligee, so they filed a bank issued Irrevocable Letter of Credit in lieu of the surety bond.
- Now the cash they need for the buyout is tied up with the bank (in support of the outstanding ILOC)!
Wow! Where to start? How we solved it:
- We reviewed the adequacy of the contract price.
- We verified the capabilities of the subcontractor performing the design responsibilities.
- We reviewed the terms and timing of the buyout agreement.
- We gathered the personal financial statements of the surviving officer / indemnitors.
- Their resumes assured us of their expertise and ability to keep the company on course, in the absence of the founder.
- After a bit of convincing the personal indemnity fell into place (except for “the boss”).
- We conducted a detailed review / verification of the in-house FS.
- We created a draft P&P bond and the principal presented it to the obligee for consideration to replace the ILOC.
- To protect the financial position of the company (in light of the upcoming buyout), a Capital Retention Agreement was executed and ratified by the Board of Directors. This prevented depletion of the company’s net worth during the bonded project.
- A Status Inquiry was sent to the obligee to report on the current condition of the ongoing contract. It indicated a healthy project.
- The indemnity was executed, excluding the major stockholder but including the minority owners and spouses.
- The obligee approved our bond to replace the ILOC.
- The switch was made, our bond covered the entirety of the contract.
- The principal got their funds (backing the ILOC) immediately released to facilitate the buyout.
Wooo! A tough one but fun too. We love “thinking on the job!” This is what you get from a 45+ year old, surety only carrier!
Fun facts:
- FIA Surety is now on the T-list!
- We are a Palomar company, PLMR on the NYSE, rated A X.
- We write Contract, Site and Subdivision bonds up to $10,000,000!
Call us when your next one pops up.
FIA Surety / First Indemnity of America Insurance Company,
a Palomar Company
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417
A Carrier Providing A rated, T listed Bonds in All States.