Financial Guarantee Bonds
Definition: A non-cancellable indemnity bond, backed by an insurance company, which guarantees that principal and interest will be paid in compliance with the underlying contractual agreement or promissory note.Financial guarantee bonds are used by debt issuers as a way of attracting investors. The guarantee provides said investors with an additional level of security that the investment will be repaid/obligation will be fulfilled in the event that the securities issuer is unable to do so. The bond may benefit the principal by enhancing the principal's creditworthiness thereby lowering the cost of financing. The guarantee "wraps" the security/promissory note with the insurer's indemnity. Because the bond represents an UNCONDITIONAL GUARANTEE of compliance/repayment, a preferred interest rate is often offered.
Surety One, Inc., offers financial guarantee instruments as the exclusive attorney-in-fact for Janus Assurance Re, and in the United States through a fronting relationship with a highly capitalized U.S. carrier, rated A+ Superior by A.M. Best. Due to our strict adherence to underwriting rules, full collateralization of the obligations assumed, respect of our reinsurance/retrocession agreements, and ongoing principal surveillance, we are able to offer a significant per risk capacity of up to U.S. $200 million.
Financial Guarantee Bond Program
We will consider executing financial guarantee instruments for asset-backed securities, private transactional financing and small national or local infrastructure projects. Financial guarantee (credit wraps) are offered on a fully collateralized basis only.
Financial Guarantee Factsheet
*Minimum bond premium U.S. $25,000
*Minimum due diligence fee U.S. $10,000
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Is a Financial Guarantee Bond What You Need?
Financial guarantee insurance was created to address risks in the United States municipal bond market and select scenarios of structured finance (largely public or P3s). It is a specialty "mono line" coverage which benefits issuers and securities holders by:
- Guaranteeing the timely payment of interest and principal on particluar security.
- Enhances the perception of the stability of a bond or security by offering the underwriting, wrapping and ongoing surveillance of the issuer.
- Improves an issuer's attractiveness to capital markets by affording the issuer the backing of the financial guarantee insurer's good name and creditworthiness.
What a Financial Guarantee Bond Is "Not"
Financial guarantee insurers do not offer credit wraps to individuals and business entities for the acquisition of tangible assets. An example would be a guarantee of a bank loan. Carriers will also not consider requests from "start ups" that are non-public or any private entity that is not well seasoned and lacks the prerequisite financial strength to qualify for the capacity that it seeks.
