Construction Case Study: Difficult Bonding Requirements
H&H Constructors was a new construction company specializing in student housing developments for universities throughout the country. H&H had their first opportunity to build a $27,000,000 student housing project in South Carolina. The bank financing the project made it a requirement within the loan agreement that H&H provide a $20,000,000 performance bond. This was an extremely difficult requirement for a newly formed company.
What are the takeaways?
Even if your construction company has been established for several years, you might be faced with a difficult bonding requirement from the bank. Here’s how we approached the situation.
1. Leverage Key Surety Markets – Working with an insurance brokerage that has a dedicated surety department is key. When there are difficult transactions, you need partners with specialized knowledge and established relationships with surety markets to help get the benefit of the doubt in certain cases.
2. Concentrate on the Financial Strengths of the Owners – In the case above, Assurance connected with a surety company that looked at the resumes and personal financial strength of the H&H owners instead of the financial strength of the newly formed entity.
3. Schedule a Face-to-Face Meeting – Once the preliminary underwriting was performed by the surety, we scheduled a face to face meeting with the executive team of H&H and the surety. This helped build trust and a better understanding of the company.
What was the result?
Assurance was successful in breaking the bond requirement into two phases and obtaining approval from the surety. We got the bond needed in order for the bank to successfully close, and H&H was able to successfully move forward with the construction of their first $27,000,000 student housing project.
“I want to thank the folks at Assurance for working so hard to get our performance bond in place. There are not many relationships I've had that have come through in such a significant way.”
- Jack Rostetter – CE, H&H Constructors
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