The Smith Manus Blog

The Renewable Energy industry will undoubtedly come under more scrutiny given the headline grabbing news that Solyndra, US poster child for renewable energy, is now bankrupt and under investigation for fraud. News like this will only add to the hurdles that finance managers and CFO’s will face when trying to run or expand their RE businesses. Banks and Private Equity firms are not immune to the whims of the marketplace and may increase their credit underwriting requirements or simply not increase existing lines of credit for fear of another headline grabbing company like Solyndra.

The initiatives for Renewable Energy still exist and the Renewable Portfolio Standards for the power generation industry also remain in place (see chart) which leads to the question: What do CFO’s and finance managers do to increase operating capital and grow their businesses?

One option is to look within their organizations for answers. Companies in this space are required to post financial assurance to guarantee future reclamation and decommissioning of their projects and our research has shown that a great number of companies pledge cash or utilize letters of credit as collateral for these obligations. One alternative to this traditional method is to use surety bonds which enable companies to potentially reduce the amounts they have outstanding on their credit facilities and allow cash used as collateral to be returned to the company thus providing the fuel for growth.

Developing surety capacity to meet the long-term financial assurance requirements of the renewable energy sector is of great interest to us at Smith Manus. For many years we have tailored programs unique to each company we serve, in a variety of industries. Please contact us for more information.

Brook Smith
President
Smith Manus Surety Bonds

On October 6, a federal court judge ruled that the Environmental Protection Agency (EPA) overstepped its authority under the Clean Water Act by implementing an Enhanced Coordination Process (ECP) that usurped the permitting authority originally tasked to the Army Corps of Engineers. The National Mining Association filed suit alleging that the EPA had been exceeding its authority by issuing the ECP and through the EPA’s guidance document, which were an attempt by the EPA to implement new standards outside of the normal rule-making procedures. The alleged effect of the ECP was an additional burdensome review that allowed the EPA to withhold the issuance of mining permits.

This ruling only deals with the coordination process and the legal battle over the guidance document continues. While this ruling is seen as a victory for mining companies, the future mine permits remains unclear. The complete opinion can be found at http://www.jacksonkelly.com/jk/pdf/c2161115.pdf.

If you’re in the coal business, or any mining business, you’ve undoubtedly heard the rumblings from the Commonwealth of Kentucky about huge increases in reclamation bond amounts required by Federal regulators for mine reclamation. The prospect of reclamation bond requirements increasing by double, triple or more, makes any mine operator, big or small, take a deep breath.

The subject has even garnered the attention of the two U.S. Senators from Kentucky, Mitch McConnell and Rand Paul, who are on record saying that the Environmental Protection Agency is “waging a war on coal” by its recent actions, or inaction, with the permitting process. The agency has both refused to process new permit requests and even rescinded existing permits. The Senator’s co-sponsored U.S. Senate Bill 468 seeks to handcuff the regulators to some degree as they see this issue as a huge overreach by the EPA and a “back-door means of shutting down coal mines.”

The Surface Mining Control and Reclamation Act of 1977 requires that anyone who obtains a coal mining permit must post a reclamation bond to ensure that the regulatory authority will have sufficient funds to reclaim the site if for any reason the permittee fails to complete the reclamation. Similarly, other mining permits (precious metals and hard rock mining) require reclamation guarantees as part of the permitting process and could be next in line for increased regulatory scrutiny.

The recently released “Final Report on the Adequacy of Kentucky Performance Bond Amount” by the Lexington Field Office of the Office of Surface Mining Reclamation and Enforcement (OSM) makes clear the view of Federal regulators that current bond calculation methods are inadequate. The OSM also insists that State regulators must address the issue sooner rather than later. In the report, the OSM notes that “if progress toward adequate bonding is not made [by the DNR], OSM will take actions necessary to remedy the issue as a programmatic concern…”

Although we foresee bond amounts being increased in the near future, we don’t believe they will be increased by the magnitude of some rumors within the industry. The tricky part of this whole equation is determining the reaction of each surety/insurance company presently providing reclamation bonds. This is especially true if the regulations are modified on a retroactive basis. Surety capacity is credit capacity. Some bonding companies, if not most, may take the position: Double bond amounts = double premiums and when applicable, double bond amounts = double collateral requirements.

As the dust settles in the coming months on this issue, my sense is few on either side of the argument will be happy with the outcome…but, balance and reason will prevail OR the lights will go out.

Brook Smith
President
Smith Manus Surety Bonds

We are often asked: “What is the T-List?” and “What does a T-Listing mean?” Each July 1st, the U.S. Department of Treasury publishes a list of insurance (surety) companies that are acceptable sureties on construction and other projects for the federal government.

The list of surety companies is referred to as the Treasury Listing (T-Listing) or more precisely the “Department of the Treasury’s Listing of Approved Sureties (Circular 570)”. The list provides the official business address of the surety, the states in which the surety is licensed to do business and the maximum limit for any single bond that the surety may provide when federal funding is involved.

For example, federal funding is involved in construction projects for all of the U.S. p. Armed Forces contracting divisions which include the Army Corps of Engineers, the Air Force, Navy, etc. Projects for the Environmental Protection Agency (EPA) also require T-Listed sureties. Additionally, most state highway projects rely on federal funding for a portion of their construction costs as do local utility projects.

In order for a surety company to be on the T-List, the Department of the Treasury reviews the surety company’s financials and sets an underwriting or single bond limit. This dollar amount is the surety company’s “T-Limit.” T-Limits are different for each company but are generally 10% of its net worth.

Being included in the Treasury Listing means that the company has undergone a review by the U.S. Department of the Treasury and it’s an acceptable surety on federal projects. On non-federal projects, some owners use the T-Listing as a kind of “Good Housekeeping Seal of Approval.” Frequently architects and engineers will specify the surety be on the T-List as a requirement – even though it may not be a federal project. These non-federal owners often tell us the T-List is an excellent reference point when prequalifying sureties and in determining maximum single bond amounts.

Through reinsurance, Treasury listed sureties can combine their T-Limits to provide larger single bonds. For example, the T-Limit of Surety A plus the T-Limit of Surety B allows Surety A to provide a single bond up to combined T-Limit of Surety A and Surety B, added together

The current T-Listing can be found online at: http://www.fms.treas.gov/c570/c570.html

James T. Smith
Smith Manus Surety Bonds

Have you heard about the changes to licensing requirements for mortgage loan originators? Do you know your state’s requirements? Do you wonder why all these changes are being made?

Based on our research, we discovered that the current economic downturn is responsible for the new licensing requirements for mortgage originators. There has been an increase in claims and litigation involving mortgage brokers and sureties. Therefore, many states have implemented or increased their bond requirements for these mortgage loan originators.

“Mortgage loan originators” – this is the new term that’s beginning to show up in the new regulation from state to state. We’ve all heard of mortgage brokers, bankers, and lenders and many states are still using this terminology. So what is the difference between these terms and an originator? Our research through the National Association of Surety Bond Producers revealed that a mortgage loan originator is anyone who helps a consumer obtain or apply for a residential mortgage loan by advising them of loan terms, preparing loan packages, or collecting information on behalf of the consumer. Despite their filing status (broker, lender, banker, or originator), most mortgage professionals are now subject to new legislation.

So what exactly is the new legislation? In 2008, the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 created the Nationwide Mortgage Licensing System and Registry (NMLSR). These are big names for these organizations, so we’re going to use their abbreviations.

The goal of the NMLSR is to standardize the licensing requirements and to enhance consumer protections. It replaces all existing applications, forms and processes in each state and eventually will be the only method for application and licensure.

Every state has taken their own approach to comply with the new standards set forth in the SAFE Act. These new minimum standards are enforced by a state loan originator (SLO) supervisory authority. The authorities ensure that all mortgage loan originators are registered with the NMLSR, and that they have met the net worth and bonding requirements for each state. These amounts are usually a function of the dollar value of the loans originated by a residential loan originator. This can get very technical, so let’s just say your bonding requirement will be based on the amount of business you do.

So what does this mean for you as a mortgage loan originator? More likely than not, your state has changed the bond requirements for your license and you may need a bond. Please contact us if you have any questions about the recent changes or want to know your new state requirement is – we are here to help.

(888) 612-6637
info@smithmanus.com