When a contract surety’s bonded principal encounters financial difficulty, our attorneys are experienced in working with sureties to evaluate the circumstances and ascertain the most efficient and least costly method of minimizing the surety’s exposure and maximizing its recovery prospects. In some, but not all instances, that alternative may be to finance the principal to completion in order to remedy a potential or existing default under the bonded contract and avoid termination of the principal’s right to proceed under the bond the contract while minimizing costs.
Our attorneys work with surety clients to address a number of financing considerations before formulating a plan and drafting financing agreements including determining:
- What information and analysis is necessary prior to financing the principal
- What methods of financing should be made available to the principal
- Whether additional collateral should be obtained from the principal
- The advantages and disadvantages in financing the principal as opposed to exercising other completion options
- The procedures the mechanics for financing the principal
- The potential risks to the surety beyond the penal sum of its performance bond
- The bond surety’s subrogation rights when financing the principal
With these considerations in mind, our attorneys use their experience and expertise to draft agreements to provide direct or indirect financing to the principal, direct payment of bonded contracts to the surety, and/or to carefully assist in setting up a joint control trust account to manage collecting and disbursing funds from the bonded contracts. At each step, our attorneys are always prepared to take the necessary measures to protect the client’s interest and attempt to minimize risk.