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A Surety Bond Solution for Letters of Credit

08/15/2016 | Kevin Keller

Many companies use Standby Letters of Credit to secure financial obligations that are incidental to their business. Surety Bonds offer unique advantages as compared to bank Letters of Credit. The Fedeli Group has a wide array of surety markets and the experienced personnel to handle the replacement of Letters of Credit with Surety Bonds as security for your financial obligations.

Financial Obligations Secured With Letters of Credit

  • Workers Compensation Self-Funding
  • Court Obligations
  • Performance Obligations
  • Insurance Deductibles
  • Subdivision (Completion) Obligations
  • Unemployment Compensation Self-insurance

Letter of Credit Replacement

  • Standby Letters of Credit are commonly used to support financial or performance obligations. The Letter of Credit is not expected to be drawn upon. Whenever a standby Letter of Credit has been used, it may be possible to replace it with a surety bond.

Advantages of Surety Bonds vs. Letters of Credit

  • Credit Capacity- frees up a company’s credit capacity and increases financial flexibility
  • Covenants- Banks may place covenants on lines of credit while a surety offers more flexibility
  • Default defenses – A bank’s letter of credit is a demand instrument; which allows the Letter of Credit holder immediate access to funds with little or no verification of a claim. Sureties have a dedicated claims staff that ensures any and all claims made against a bond are valid prior to payment. This is very important
  • Claim handling- A surety has a professional, dedicated claims staff available to assist with the claims resolution process
  • Rates- Letter of credit rates have been tied to the strength or weakness of the macro economy plus a utilization fee. Bonding rates tend to be more stable and are directly tied to the credit quality of the principal and to the types of obligations bonded
  • Duration – A Letter of Credit may be held for up to two years before it is released by the beneficiary. A surety bond is released upon completion of the obligation

If you would like to discuss how The Fedeli Group can design a surety bond program for your organization, please contact Kevin Keller at (216) 643-6978 or kkeller@thefedeligroup.com.