Case Study: Bond Strategy Unlocks Project Funding

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THE CHALLENGE: Our client, a Native American tribal housing agency, was nearing the end of building a $24 million, 98-unit apartment building when it discovered the federal tax credits it was relying on to complete the project were about to run out. Work had been under way for about two years by this point, and the tribe suddenly needed several million dollars to get across the finish line. Finding a lender and surety company willing to step in wasn't going to be easy.

A case study on how our bond strategy helped a Native American tribe unlock the financing needed to complete a $24-million apartment project.

OUR SOLUTION: Because tribes operate under sovereign immunity laws, securing title insurance isn’t always a straightforward matter. Complicating things further in this case: the potential for payment disputes and mechanic’s liens, both common issues in unfinished projects. It was clear that unlocking the dollars needed to wrap up the project would require a payment bond in case the tribe, which was acting as its own general contractor, failed to pay its subcontractors or suppliers.

THE OUTCOME: It took weeks to make sure the lenders, lawyers, title company and tribe were all aligned on a solution. Finding a surety company willing to take the gamble also proved difficult, because, again, sovereignty laws can make it hard for non-tribal entities to prevail in civil disputes. Sureties also typically like to be in on things from the get-go, rather than entering deals mid-stream or later. The fact that the GC and the project owner were one and the same only made things less sure for the surety. No wonder we were met with skittish underwriters at practically every juncture. It was a big ask. In the end, however, we were able to persuade a surety we had worked with for years that the reputational risk for the tribe would have been too great for it to default. That was especially true when so little work was left to be done on its own project. Fortunately, we prevailed. The bonds were written, which then allowed the title insurance company to issue its policy, the lender to disburse its funds and, finally, construction to wrap up without further delay.

The Mahoney Group, based in Mesa, Ariz., is one of the largest surety, insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 480-214-2778.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

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