Bonds and guarantees are written promises to pay for direct loss or damage suffered by a third party as a result of a breach of contract. The placement of bonds and guarantees through the surety market, can help companies by keeping bank facilities available to meet cash flow requirements.
The most common Bond we are asked to place are Performance Bonds, a Performance Bond provides the employer with between 10% and 20% of a contract value in the event of a contractor or supplier failing to perform to the agreed terms. Any company can use Performance Bonds, but are more common in the construction or service industry sector
It is a guarantee given when money is paid before goods or services are supplied. So, if the client agrees to make an advance payment (sometimes referred to as a down payment) to a supplier, a bond may be required to secure the payment against default by the contractor. This is referred to as an Advance Payment Bond (APB), Advance Payment Guarantee or Advance Stage Payment.
Credit Enhancement is a strategy for improving the credit risk profile of a business or structured financial transaction usually to obtain better terms for repaying debt. Within the financial sector Credit Enhancement may be used to reduce the risks to investors of certain structured financial products or transactions. And/or also to improve the credit profile of borrowers.
A Bid Bond, also known as a Tender Bond, can sometimes be a requirement of a tender process. It is often, for example, required with the submission of a public work contract. Usually an On-Demand Bond, a Bid Bond is submitted with a tender to secure the tender’s commitment to commence the contract. This bond protects the project owner in the event of the successful contractor failing to execute the contract or meet other specified conditions, for example: to provide a Performance Bond which is required to commence the project.
Surety bonds are usually required from oil and gas well operators as a prerequisite to obtaining permission to explore or drill in a particular area. The surety bond ensures strict compliance with EPA and/or State regulations on operating an oil & gas well, disposing of waste, decommissioning of the operation, and more.
Provided by a surety (insurance company) replacing the MRLC with a bond therefore freeing up crucial working capital and increasing cashflow. The bond would be an on-demand instrument, issued by an “A” rated insurer with an amount that is “capped” to reflect the projected maximum exposure during the lease.