Surety Bond Quarterly - Summer 2014 - 30

Panelists of the commercial surety claims process presentation: "Commercial Surety and Bankruptcy: The Professional Surety Bond
Producer's Role in Avoiding Loss and Maintaining Surety Credit through Bankruptcy." From left, moderator Armen Shahinian of
Wolff & Samson PC, Rob McDonough of Aon NY, Joe Page, formerly of Synagro Technologies, Hank Minissale of ACE Surety, and
Stephen Haney of ACE Surety.

entities and counsel for debtors and
lenders do not immediately appreciate the fact that surety bonds, while
issued by insurance companies, are
not like traditional insurance policies.
The tendency on the part of some
debtors is to lump their surety bonds
with insurance policies in preparing
first-day orders, seeking to keep in
place their insurance policies. Under
the Bankruptcy Code, insurance typically is property of the debtor estate,
having been purchased by the debtor
through payment of a premium in
order to obtain the benefit of coverage in the event of an insured loss.
In contrast, surety bonds are extensions of surety credit which, under
the Bankruptcy Code, are properly
characterized as financial accommodations. As such, they are not property of the debtor estate and are not
capable of being assumed by the
debtor without the surety's consent.
When a bonded principal files for
bankruptcy protection, seeking to
reorganize, typically it will continue
to need surety bonds to operate.
Those bonds may be license, permit, contract and other bonds, but
regardless of type, if the debtor is
seeking to maintain operations as a
Chapter 11 debtor, surety credit may

30

be no less essential to the viable reorganization of the debtor than is bank
credit. It is the role of the surety's
counsel to ensure that the court, the
debtor, and the bank's lender understand that reality so that appropriate
protections can be put into place to
provide comfort to the surety that,
should defaults occur after the filing
of the bankruptcy petition, the surety's resulting claim against the debtor
estate is treated, at minimum, as an
expense of administration entitled to
priority over claims of general unsecured creditors.
Even though surety bonds are financial accommodations that the debtor
cannot assume, the Bankruptcy Code
provides for an automatic stay, which
can prevent cancellation of the surety's bonds in the absence of the filing
of a motion seeking relief from the
stay in order for the surety to send
cancellation notices.
With a relationship with both the
debtor and the surety, the surety
bond producer can play a critical
role in facilitating communications
when a bankruptcy is imminent. The
surety bond producer, in appropriate circumstances, can facilitate both
protection of the surety with respect
to outstanding bonds and assist a

SURETY BOND QUARTERLY | SUMMER 2014

debtor in furtherance of a potentially
successful reorganization by allowing
its operations to continue to function
unimpaired during the bankruptcy
process by obtaining bonding even
after the bankruptcy petition is filed.
Both of these goals may be accomplished pursuant to a negotiated
"First-Day Order," which provides
administrative expense status, and
perhaps some collateral, in order to
induce the surety to keep its bonds
in place and to possibly issue new
bonds during the bankruptcy. Prebankruptcy communication is critical
in order that the debtor's business is
not unduly disrupted. A surety bond
producer is in a unique position to
fulfill this critical facilitative role.
In the Synagro matter, even though
over $100 million of bonds were outstanding, no losses were sustained
by the sureties as a result of proactive
management of both the sureties'
exposure and negotiations with the
debtor and, through the debtor, with
its lenders. That process included
educating the parties in interest
regarding why it was in their mutual
interest to retain surety credit and
protect the surety against loss. If the
debtor entity had not retained surety
credit, then it would likely have been



Surety Bond Quarterly - Summer 2014

Table of Contents for the Digital Edition of Surety Bond Quarterly - Summer 2014

NASBP Upcoming Meetings and Workshops
2014-2015 NASBP Executive Committee
From the CEO: We have a great story so let's tell it!
Practical Insights: What You Need to Know - Cost charging in government contracts can result in common, but avoidable pitfalls
Strength in numbers: Harness the power of networking
Profile: President Thomas M. Padilla
Proving your worth: Surety bond producers provide value to clients and beneficiaries
NASBP Fall Workshops
Contract surety claims: The promise - Pact or fiction
Commercial surety claims: A case study on the bond producer's role in assisting a client to avoid loss and maintain surety credit through bankruptcy
Develop the techniques necessary to be an effective policy advocate
NASBP Annual Meeting focuses on the importance of mentoring and critical industry information
Index to Advertisers
Surety Bond Quarterly - Summer 2014 - cover1
Surety Bond Quarterly - Summer 2014 - cover2
Surety Bond Quarterly - Summer 2014 - 3
Surety Bond Quarterly - Summer 2014 - 4
Surety Bond Quarterly - Summer 2014 - 5
Surety Bond Quarterly - Summer 2014 - 6
Surety Bond Quarterly - Summer 2014 - 2014-2015 NASBP Executive Committee
Surety Bond Quarterly - Summer 2014 - From the CEO: We have a great story so let's tell it!
Surety Bond Quarterly - Summer 2014 - 9
Surety Bond Quarterly - Summer 2014 - Practical Insights: What You Need to Know - Cost charging in government contracts can result in common, but avoidable pitfalls
Surety Bond Quarterly - Summer 2014 - 11
Surety Bond Quarterly - Summer 2014 - Strength in numbers: Harness the power of networking
Surety Bond Quarterly - Summer 2014 - 13
Surety Bond Quarterly - Summer 2014 - 14
Surety Bond Quarterly - Summer 2014 - 15
Surety Bond Quarterly - Summer 2014 - Profile: President Thomas M. Padilla
Surety Bond Quarterly - Summer 2014 - 17
Surety Bond Quarterly - Summer 2014 - 18
Surety Bond Quarterly - Summer 2014 - 19
Surety Bond Quarterly - Summer 2014 - Proving your worth: Surety bond producers provide value to clients and beneficiaries
Surety Bond Quarterly - Summer 2014 - 21
Surety Bond Quarterly - Summer 2014 - 22
Surety Bond Quarterly - Summer 2014 - 23
Surety Bond Quarterly - Summer 2014 - NASBP Fall Workshops
Surety Bond Quarterly - Summer 2014 - 25
Surety Bond Quarterly - Summer 2014 - Contract surety claims: The promise - Pact or fiction
Surety Bond Quarterly - Summer 2014 - 27
Surety Bond Quarterly - Summer 2014 - 28
Surety Bond Quarterly - Summer 2014 - Commercial surety claims: A case study on the bond producer's role in assisting a client to avoid loss and maintain surety credit through bankruptcy
Surety Bond Quarterly - Summer 2014 - 30
Surety Bond Quarterly - Summer 2014 - 31
Surety Bond Quarterly - Summer 2014 - Develop the techniques necessary to be an effective policy advocate
Surety Bond Quarterly - Summer 2014 - 33
Surety Bond Quarterly - Summer 2014 - NASBP Annual Meeting focuses on the importance of mentoring and critical industry information
Surety Bond Quarterly - Summer 2014 - 35
Surety Bond Quarterly - Summer 2014 - 36
Surety Bond Quarterly - Summer 2014 - 37
Surety Bond Quarterly - Summer 2014 - Index to Advertisers
Surety Bond Quarterly - Summer 2014 - cover3
Surety Bond Quarterly - Summer 2014 - cover4
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