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You may never have seen a case quite like this one…
Applicant needed a multi-million dollar maintenance bond for work installed under a subdivision development agreement.
The construction phase was already bonded by another surety and completed. They could not provide the required multi-million dollar maintenance bond.
Applicant provided a recent fiscal year-end statement with a negative $900,000 Net Worth and a $1 million+ Net Loss
“Compilation” financials for a bond over $3 million
The municipal obligee required a straight seven-year bond term for 100% of the construction amount. (Rolling your eyes yet?)
How did FIA Surety put this together?
We verified the Compilation financials based on our “audit” of supporting schedules.
We restructured the Net Worth analysis by arranging the subordination of a major loan.
We worked with their CPA to evaluate the profitability of their current fiscal year.
We verified the warranty in the underlying construction contract.
We conducted a negotiation with the obligee resulting in a revised contractual obligation for the Principal, and they accepted a revised bond form written by our legal department – with a shorter term, and permitting non-renewal by FIA Surety.
We obtained the obligee’s written acceptance of the work in place.
We conducted a prior surety check with the incumbent carrier.
Unusual? NO! Not for us. FIA Surety is known for getting deals done, even the hard ones.
If this is the level of service and expertise you want on Your bonding opportunities…. Call Us on the next one! 856-304-7348
FIA Surety / First Indemnity of America Insurance Company
OK, the Jelly of the Month Club is AWESOME, but that’s not what we’re talking about…
A few of the actual comments from our 12/1/22 FIA SURETY “Free CE” Zoom webinar on Commercial and Miscellaneous Bonds:
As always, very informative. Thanks.
Very good course! Thank you Steve
Thanks Steve, very informative!
Very helpful, thank you Steve!
Thank you Steve. I liked your course. Lots of info!
Great overview of Commercial Surety. Thanks Steve
Always learn something in your classes!
You’re very knowledgeable. Thanks!
You were very informative and patient. Thank you for the class.
Enjoyed the course, very informable.
As someone new to Surety this was very informative. Thank you
Very informative! Great course and great job.
Appreciate the detailed information in your courses, Steve – Thank you!
Our Free CE courses are not only the best / free place to learn about surety, they are also CONVENIENT (attend from home or office) and this gift keeps giving! The course info is all practical stuff you can use, boost your career, serve your clients better (maybe even make MORE MONEY!)
Face it, this is way better thanjelly!
To date we have provided more than 2,000 hours of Free CE education worth over $25,000 in the regular market. AND we just rolled out our schedule for the first quarter of 2023. More great stuff you can use: Click for info!
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FIA Surety / First Indemnity of America Insurance 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!
Here is a great question that came up during one of our training sessions in the office:
What’s the difference between an Irrevocable Letter of Credit, a Line of Credit and a Set-aside Letter?
Letter of Credit
This document is also referred to as an “ILOC,” a Letter of Credit or a Standby Letter of Credit. They are a commercial bank customers undistributed loan payable to a designated 3rd party. Wow, THAT explains it!
Here is an example: Elon is entering into a contract that must be secured. It could be a construction contract that requires either a Performance Bond or an ILOC. The instrument is needed by Elon and he is the applicant and paying for it, but the beneficiary is the other party in the contract, LaFawnduh.
The instrument says that if a default occurs the beneficiary can seek recovery via that instrument. LaFawnduh, can send a demand letter to the bank which will be obligated to send funds. It will be recorded as a loan to Elon.
Line of Credit
This is simply a credit facility, such a a home equity loan or Working Capital Loan for a business. The applicant / borrower can draw out funds when needed. A loan document governs the transactions.
This is an agreement executed by a bank regarding a customer they share with a bonding company. The bank is loaning money to the client to fund a project guaranteed / covered by a surety bond. This could be on a subdivision, where the borrower must self-fund the cost of construction.
In the event of the demise of the borrower, the set-aside letter promises to keep the loan in play so the surety has a source of funds to finish the work.
Now, was that so bad? All three concern the handling of money, but for different purposes.
This ratio is an aspect of surety underwriting that is important because it can affect the availability of both surety bonds and bank credit. Let’s learn about it.
The company Balance Sheet (BS) is a one-day snapshot of the money in the company (Assets), and who owns it (Liabilities.) It is the same money viewed from two different directions.
The last section on the liabilities side is the Net Worth (may be called Stockholders Equity.) It is the portion of the asset dollars owned by the founders and investors of the company.
The Total Liabilities shows the amount of the assets dollars owned by 3rd parties creditors, such as the bank (mortgage or equipment loans) or suppliers on accounts payable.
D:E stands for Debt to Equity. It measures the balance between these two groups of creditors. As the 3rd party creditors increase, the company becomes “more leveraged,” less creditworthy. Eventually the banker will say, “We can’t give you a loan because you are already carrying a lot of debt.” The surety underwriter may say “The Net Worth is too low.” It’s means the same thing…
Next question: What is an acceptable D:E Ratio? When is it not a problem?
Analysts generally look for a ratio not in excess of 3:1 or maybe 4:1. At 4:1, the Total Liabilities would be 4 times greater than the Net Worth.
The D:E Ratio a sign of financial health and successful management. All analysts use it, and it’s easy to “eyeball.” Get in the habit of checking it, and you may see some wild numbers – a very good or a very bad sign! Good to know.
Are we Surety Bond Geeks? Well, we love this stuff so. . . .
Brought to you by FIA Surety. Creative Surety Solutions since 1979! A carrier providing A Rated, T listed bonds in all states
So get with the program and position your surety production to seize this emerging opportunity.
Your uncle is spending b-b-billions on EV charging stations! It’s likely that the operators will need a surety bond. This may be a production opportunity in all states. Are you ready for it?
Contract bonds, too! Building the charging station facilities can be expensive, sometimes hundreds of thousands of $. Be ready to issue P&P Bonds for these specialty contractors!
These will be new bond clients, unfamiliar with the process. No bonding history. They may be new entities. You’re ready for them because you have FIA Surety, a carrier that has solved bonding problems for more than 40 years. We’re positive that you’ll be shocked at how our well-grounded underwriting serves your current needs!