Filed Under:Agent Broker, E&S/Specialty Business

Untangling the Options

Agents play an integral role in reviewing security options. Learn the intricacies of surety bonds and bank letters of credit.

In the wake of the recession’s aftermath, many businesses are seeking greater access to credit. Whether the intended use of credit is to fund acquisitions, retire or refinance high interest rate debt, or to support capital expenditures, certain circumstances call for businesses to take a closer review of potential options before establishing or tapping into their credit facilities. As part of any business’ trusted advisers, agents and brokers play an integral role in reviewing what security solutions are available that won’t tie up credit and allow the client to take advantage of his financial standing and liquidity. 

Clients need to be strategic in their decision making, particularly in an environment when more businesses may be required to post security in the form of a bank letter of credit or surety bond. Educating your clients about alternatives like surety bonds can help them preserve their bank lines of credit for other strategic purposes. 

Got Cash?

In addition to flexibility and keeping lines of credit available, surety bonds create opportunity for more affordable securitization. An article from The Wall Street Journal (“In Carnage, Cash Comforts”) revealed that many companies are holding more cash now than they were before the recession hit. In fact, non-financial companies held 59 percent more cash in August 2011 than the end of Q3 2008. Clients who are required to post collateral with the surety and happen to have large cash or equivalent reserves on hand can obtain reduced surety costs while retaining the investment income from those collateral deposits. Travelers, for example, has established third-party intermediaries to help keep those funds secure in highly liquid and safe investments. The types of investments are negotiated by the client and the securities intermediary and typically mirror the established conservative investment strategies of the client. 

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