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<\/a><\/p>\nThis is a real case that was handled by our surety bond experts… a doozie! See what you can make of it.<\/p>\n
The facts:<\/p>\n
- \n
- This is a Performance Bond request for a multi-million dollar subcontract<\/li>\n
- The applicant \/ principal is a long established company<\/li>\n
- They have successfully completed similar sized projects<\/li>\n
- The company has a modest net worth, but is on a profitable trend. Ratios are OK.<\/li>\n
- Personal financial statements of the stockholders add more net worth to the picture<\/li>\n
- The company is owned by a father and son. Son is the primary stockholder.<\/li>\n
- We noted their SS numbers are only a few digits apart<\/li>\n
- Father has a substantial net worth. Son has a small net worth as indicated on his personal statement.<\/li>\n
- The applicant has started the subcontract<\/li>\n
- The GC \/ obligee has a mandatory bond form – very tough. It effectively makes it a forfeiture bond (obligee completes the job and sends you the bill.)<\/li>\n
- Father has a living trust<\/li>\n
- Son also indicated he has a trust<\/li>\n<\/ul>\n
A lot of moving parts. What are the issues?<\/p>\n
- \n
- Low company net worth. Too low for the size bond requested.<\/li>\n
- “Close” SS numbers imply these individuals are immigrants (received SS numbers at about the same time). Are they U.S. citizens?<\/li>\n
- Started subcontract. Why were they allowed to start without a bond? Degree of completion? Work acceptable? Bills paid? On schedule?<\/li>\n
- Do we want to write a forfeiture bond form (financial guarantee?)<\/li>\n
- What assets are in the trusts? Can they give indemnity? Will we rely on the indemnity of a trust?<\/li>\n<\/ol>\n
– Think of your possible solutions –<\/strong><\/em>Here is the approach crafted by our underwriters:<\/p>\n
- \n
- Low company net worth.<\/u> We do not prefer to require collateral because it may be counter-productive, making it harder for the client to complete the project. Instead, the client agreed to add capital to the company – an investment in their future. The funds could be a subordinated stockholder loan, or a stronger method: Additional Paid-in Capital. The latter is more permanent and therefore desirable. The client agreed to permanent capital that would be verified in writing by their CPA and supported by a current interim balance sheet.<\/li>\n
- Close SS numbers.<\/u> Why would we inquire about anyone with a social security number? It is because the number itsel<\/em>f does not prove citizenship – nor does the filing of a US tax return. Non-citizens authorized to work in the U.S. can get a SS#. “Tax residents” are permanent residents and green card holders who are non-citizens required to pay U.S. taxes. All sureties are cautious when taking the personal indemnity of a non-citizen. They may easily flee the country to avoid their obligations. On this account we determined the father and son were immigrants as we suspected, and naturalized U.S. citizens.<\/li>\n
- Started subcontract. <\/u> This would be clarified by obtaining our All’s Right Letter from the obligee, stating the relevant facts on the project (degree of completion, on time, no problems, etc.)<\/li>\n
- Bad bond form.<\/u> We had previous dealings with this major GC and negotiated a bond modification that made the bond operate more normally. They agreed to use the bond mod again.<\/li>\n
- Trusts<\/u>. It turned out there was only one trust. The son was the beneficiary <\/em>of the fathers trust, no separate trust of his own. A review of the father’s trust showed it was not prohibited from signing the indemnity agreement. However, living trusts are revocable<\/em>, meaning the terms can be changed and assets moved out – making them unreliable indemnitors. And it contained the single most important asset, the father’s residence. How to overcome this last obstacle? Our solution: We will place a lien on the property giving us access regardless of changes in the trust.<\/li>\n<\/ol>\n
There you have it. Did you come up with solutions to match ours? It was a tough \/ complicated case, but we worked hard to solve it.We’ll work hard to solve your <\/em>bond cases too. Bid bonds, performance and payment, and also site and subdivision!<\/p>\n
Include us in your bond production efforts. We can make it happen.<\/em><\/p>\n<\/div>\n
\nSteve Golia is FIA Surety’s Marketing Manager.<\/p>\n
The company provides Bid, Performance, Site and Subdivision Bonds with speed and creativity. Contact us today and let’s discuss how we can help. Call 856-304-7348.<\/p>\n
Visit us Click!<\/a> First Indemnity of America Ins. Co., Morris Plains, N.J.<\/p>\n<\/div>\n
Article Source: https:\/\/EzineArticles.com\/expert\/Steven_Golia\/152522<\/a><\/p>\n<\/div>\n
Article Source: http:\/\/EzineArticles.com\/10130844<\/p>\n","protected":false},"excerpt":{"rendered":"
Bond Underwriting Challenge By Steven Golia\u00a0\u00a0| \u00a0 June 10, 2019 This is a real case that was handled by our surety bond experts… a doozie! See what you can make of it. The facts: This is a Performance Bond request for a multi-million dollar subcontract The applicant \/ principal is a long established company They\u2026 Read More »<\/a><\/span><\/p>\n","protected":false},"author":1,"featured_media":279,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[15,8],"tags":[],"_links":{"self":[{"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/posts\/2418"}],"collection":[{"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/comments?post=2418"}],"version-history":[{"count":5,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/posts\/2418\/revisions"}],"predecessor-version":[{"id":2423,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/posts\/2418\/revisions\/2423"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/media\/279"}],"wp:attachment":[{"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/media?parent=2418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/categories?post=2418"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.adamsmithnow.com\/index.php\/wp-json\/wp\/v2\/tags?post=2418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
- Close SS numbers.<\/u> Why would we inquire about anyone with a social security number? It is because the number itsel<\/em>f does not prove citizenship – nor does the filing of a US tax return. Non-citizens authorized to work in the U.S. can get a SS#. “Tax residents” are permanent residents and green card holders who are non-citizens required to pay U.S. taxes. All sureties are cautious when taking the personal indemnity of a non-citizen. They may easily flee the country to avoid their obligations. On this account we determined the father and son were immigrants as we suspected, and naturalized U.S. citizens.<\/li>\n
- Low company net worth.<\/u> We do not prefer to require collateral because it may be counter-productive, making it harder for the client to complete the project. Instead, the client agreed to add capital to the company – an investment in their future. The funds could be a subordinated stockholder loan, or a stronger method: Additional Paid-in Capital. The latter is more permanent and therefore desirable. The client agreed to permanent capital that would be verified in writing by their CPA and supported by a current interim balance sheet.<\/li>\n