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US Surety Bond Guarantee

In many export transactions the buyer requires the exporter to provide a contract guarantee (bond) in favour of the buyer.  Under the US Surety Bond Guarantee the NZECO will provide a 100% performance guarantee to a US surety bond provider on behalf of the NZ exporter.

How does it work?

Contracts with US Federal or State buyers typically require suppliers to post bonds for a minimum of 100% of the contract value, compared with 10–15% elsewhere.

New Zealand’s small to medium-sized enterprise exporters may experience difficulty obtaining such sizeable surety bonds, particularly if they are not well known by the US surety bond issuers and because of insufficient tangible security. The New Zealand Export Credit Office’s (NZECO) US Bonding Line facility can provide NZ exporters with easier access to surety bonds in the US market.

Under the US Bonding facility, the NZECO will assess an exporters' ability to deliver on a proposed contract.  The NZECO will then provide a 100% performance guarantee to Liberty Mutual Surety [1] who will then issue a bond to the exporter for delivery to their buyer.

How the facility works is summarised in the diagram below:

Contract Bonds flow diagram

An example of how NZECO has successfully supported a New Zealand exporter is summarised under Case Studies.

Benefits of US Surety Bond Guarantee

Benefits for a New Zealand exporter include:

  • the opportunity to secure larger contracts with US Federal or State buyers;
  • reduces the complexity of US bonding rules and regulations;
  • minimal security required;
  • frees up the exporter’s working capital; and
  • no US market limitations as surety bonds are available for all US States as well as Puerto Rico and Guam.

 

Approval Process

We recommend that an exporter contacts the NZECO as soon as a potential deal is anticipated, and provides as much of the information available on the deal, the exporter’s financial capacity and technical capabilities, and the buyer as possible.  An exporter may also download and submit an NZECO application form.

Eligibility

In assessing applications, the NZECO considers several factors, including:

  • a contract for the export of capital goods or services from a US government buyer (State or Federal) that requires a US surety bond with a sufficient level of New Zealand content (sufficient level of New Zealand economic benefit);
  • a company’s export trading history, managerial, technical, and financial capabilities;
  • acceptable contract terms, including tenure that is consistent with the NZECO’s existing delegations (of 1-14 years);
  • acceptable bonding instruments;
  • the current conditions and economic outlook in the US, and the foreign buyer's profile; and
  • whether the bond can be offered in accordance with international guidelines, including the NZECO’s requirement to break-even over the longer term.

 

The NZECO is also willing to consider “pre-approving” firms to deliver certain sized contracts.  For example, the exporter may be aware that a tender is likely in the next 6 months for a US$2.0m transaction.  The NZECO is willing to assess the capability of the firm now, in anticipation of that transaction.  Tender processes may at times be quite a tight process.  Under this approach, at the time the tender is nearing its close, the assessment only needs to be updated.

Once an exporter’s signed application is approved, the NZECO issues a letter of offer specifying the coverage and premium. Upon receipt of the premium, the NZECO issues a Letter of Instruction to Issue a Bond to Liberty Mutual Surety, confirming full reinsurance coverage.

Fees

A premium will be charged to the exporter for the US Surety Bond Guarantee. Pricing is based on a number of variables including liability, duration of cover, exporter risks and contract-specific risk factors and security considerations. This pricing is fixed on an individual basis and is intended to cover the risk that the NZECO is taking.

Security

As with all export credit arrangements, the NZECO shares a degree of the risk with the insured (in this case, the exporter).  The NZECO will provide a 100% guarantee to the US surety bond provider, but this may be backed by forms of security between the exporter and the NZECO.

Minimum security (cash or unconditional payment guarantee) is dependent upon the bond type and assessment of the risks involved.  The NZECO may have recourse to company directors and related companies.

How do I apply and what do I need?

To apply for a US Surety Bond Guarantee you need to complete the application form and pay the non-refundable assessment fee of $1,000 NZD.

The application form outlines the information the NZECO needs to assess your application for a US Surety Bond Guarantee.  As part of this assessment, the NZECO will meet with you and your bank or bond provider.

 

[1] Liberty Mutual is a leading US surety writer and is part of the Boston-based Liberty Mutual Group Inc. Underwriting on the strength of the Liberty Mutual Group’s superior credit ratings and financial stability (highly rated by A.M. Best, Moody’s and Standard & Poor’s), Liberty Mutual Surety is one of the largest surety writers in the United States, backed by more than 90 years of experience.

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