Oil & Gas
In the oil patch, surety capacity remains tight. Outside of well-capitalized projects and near investment-grade corporations, surety capacity has become extremely difficult to obtain on an uncollateralized basis. Companies that have carried collateral-free programs for years will find themselves facing rate increase or collateral demands as sureties look to secure their positions prior to any bankruptcies.
Exploration & Production (E&P) operators should be having an open dialog with their underwriters on how they plan to weather the next 6 months, as they go through:
- Credit redeterminations
- Asset write-downs
- Depressed crude demand
One should approach surety underwriters in the same manner they would address their bank. The EPIC team has always found that a thorough presentation of one’s financials and operation plan, in person, goes a long way to stave off collateral demands and severe rate hikes in the surety market.
The construction surety market remains strong for the time being. However, capital and backlogs have traditionally lagged 12 to 18 months behind the current environment. Many contractors who applied for, and received, Paycheck Protection Program (PPP) Loans from the Small Business Administration (SBA) will be utilizing the last of those funds in the next 30 days.
We can expect to see a rise in defaults on contract surety bonds because of this. However, the market for performance and payment bonds has remained strong since it is the largest annual surety demand by volume, and each project or contractor has their own level of risk and is judged individually.
Contractors in the oil and gas space could have some jobs canceled entirely due to cutback, impacting future backlog. Surety capacity is still available to these contractors, but the job opportunities are likely to become more scarce.
Those who bid more government work will find greater stability through the latter half of 2020 and into 2021.
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Some governing bodies are using this economic downturn to justify their need for larger financial assurance coverage. Please contact us if you have received such demands and we will confirm what is justified, and address how to resolve the solution.
Where Risk Meets Finance
EPIC Surety Team
EPIC works closely with you to develop and maintain the right surety program, one that integrates your overall risk management insurance and financial goals no matter what market fundamentals and underwriting dynamics happen.
We have structured surety programs for many domestic and international companies in an array of fields and industries. We apply a rigorous approach and thorough understanding of this important credit tool to your unique situation to set your business up for success.