Clients
Relieving $100 Million Collateral Requirement
Situation
A global rental car company being acquired by a private equity firm was required to post more than $100 million in surety bonds to collateralize its historical deductible program. Prior to acquisition, the balance sheet of the parent company, a S&P 100 firm, served as security for the surety bond program. However, with the new entity's balance sheet providing a 5:1 debt to equity ratio, surety bond underwriters were requiring collateral in the form of Letters of Credit -- which threatened to strain the financial capacity of the new entity and inhibit new business opportunities.
Solution
CRS engaged senior management of surety bond underwriters and their brokers in a "working party" to develop a solution. After learning more about the transaction and the investment community, the lead underwriters agreed to continue to issue the surety bonds without collateral – thereby releasing almost $75 million in LOC’s and avoiding the negative financial impact.
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