Ex-Insurance Company Officer Sentenced To Federal Prison For Bad Bonds
Story from New York State Insurance Department

The former chief underwriting officer of a Monticello insurance company was sentenced to 10 years and one month in federal prison Thursday for selling $535 million in fraudulent surety bonds and stealing $22.5 million in premiums instead of turning the money over to insurers.

Judge Marcia Morales Howard handed down the sentence in U.S. District Court in Florida against William Raymond Miller, 37, who pleaded guilty to mail and wire fraud in December. The court also ordered a personal money judgment of $22 million against him.

Miller, of Clarksville, MD, has already forfeited $22.5 million to the government, along with real estate in Maryland and Florida.

The sentencing climaxed a case begun when investigators in New York and other states looked into surety bonds Miller sold between 2005 and April 2008. Miller was accused of forging documents and pocketing premiums instead of turning the money over to insurers to issue the bonds for construction projects throughout the United States.

Under a plea agreement with federal authorities, Miller admitted using the names of several corporations to sell the worthless bonds. He made it appear that he was issuing the bonds in the names of legitimate insurers.

The New York State Insurance Department's Frauds Bureau began investigating Miller in early 2008 after he was fired by the Upper Hudson National Insurance Company in Monticello, where he was the company's chief underwriting officer.

The insurer fired Miller and contacted authorities after learning that he had sold a worthless $38 million performance bond purportedly authorized by Upper Hudson. He was accused of keeping the $1.9 million in premiums paid for the bond by a construction company engaged in a project in Nebraska.

Besides the New York investigation, Miller was also investigated by state authorities in Maryland and Florida and the FBI. The New York portion of the investigation also involved the U.S. Postal Service's Inspection Service in Albany.

Assistant U.S. Attorneys Russell C. Stoddard and Bonnie A. Glober prosecuted the case.

New Zealand Extends Surety Bond Assistance For Exporters To U.S.
Story from Guide2.co.nz

Wellington, July 1 NZPA - New Zealand companies wanting to sell their goods and services to United States authorities received a welcome boost today.

Finance Minister Bill English announced the Export Credit Office's United States Surety Bonds programme would be extended from $75 million to $100m.

The United States government requires any company supplying it to have a bond with a registered US company for the total amount of its contract.

The bond ensures the US government will get its money back if a company fails to deliver. The bond companies will not usually provide bonds directly to New Zealand companies.

The surety bonds programme underwrites the bonds, allowing New Zealand companies to trade with the United States government.

Mr English said the $25m boost was a "lifeline to several more exporters".

Without the bond programme many New Zealand companies "would have been unable to tender and win multi-million dollar contracts".

Auckland baggage-handling systems operator Glidepath and Christchurch real-time public transport information company Connexionz have both made use of the programme.

Last week, the Government announced an extension of the short-term Export Trade Credit Guarantee.

The $150m scheme provides insurance for exporters whose banks require it.

Increasing exports is one of the best ways to support jobs and help New Zealand out of the recession, Mr English said.

Caltrans And SBA Join Forces To Enable Small Business Contracting
Story from EGPnews.com

Hoping to increase the number of small businesses able to take advantage of contracting opportunities, the U.S. Small Business Administration (SBA) and the California Department of Transportation (Caltrans), Office of Civil Rights, have signed an agreement aimed at increasing small businesses access to SBA’s Surety Bond Guarantee program.

Under a Joint Bonding Assistance Initiative, SBA and Caltrans will work together to help ensure qualified small businesses can obtain the necessary bonding required on Caltrans construction contracts and subcontracts, the agencies announced earlier this week. A key component of this initiative involves the increased participation of surety companies, and surety company agents and producers in the SB Surety Bond Guarantee program. The SBA program guarantees a surety company between 70 and 90 percent of the cost incurred by the surety company in the event of a contract default.

“During these difficult economic times,” said SBA Administrator Karen G. Mills, “this kind of federal-state partnership is particularly helpful to small and emerging contractors who have seen their markets hurt by a poor economy and a lagging construction environment.”

The agreement, in the form of a Memorandum of Understanding, MOU, dovetails with the recent passage of the American Recovery and Reinvestment Act. The Act contains, among other significant programs, the largest investment in new infrastructure for the nation since the 1950s, including roads, bridges and mass transit systems, and contractors will need surety bonds to bid on the work.

The Act also raises the contract ceiling for small business bond guarantee eligibility from $2 million to $5 million, and on federal contracts, up to $10 million following certification by the contracting officer that a bond guarantee would be in the best interests of the government. By increasing the limits, Caltrans and SBA hope that more small business will be able to take advantage of contracting opportunities expected to increase due to an influx of Federal Stimulus revenue.

In a separate move, the SBA announced it would also help small businesses suffering financial hardship due to the slow economy, by providing temporary relief to keep their doors open and get their cash flow back on track through to a new loan program announced by SBA Administrator Karen G. Mills.

More Entrepreneurs Exploring Options With SBA Loans
Story from the Wichita Eagle

Slowly but surely, the impact of the federal stimulus package on small businesses and lenders is unfolding.

And the net effect so far has been a significantly increased interest in U.S. Small Business Administration-backed loans by borrowers and lenders.

Calls to the SBA's Wichita district office have increased about 50 percent, to 100 a week, since the Recovery Act became law Feb. 17, district director Wayne Bell said Friday.

Nationally, loan volume for SBA's two most popular loans is up 25 percent since mid-March. Local bankers and SBA officials don't have specific figures, but they say SBA business is on the upswing.

"We're seeing a lot more interest and getting more outside inquires," said Doug Neff, executive vice president for commercial banking at Commerce Bank.

More than half of the $730 million in the Recovery Act funding has been targeted to make it easier for small businesses to borrow.

In addition, all SBA fees that borrowers have had to pay have been eliminated through Dec. 31. Typically, those fees amount to 2 to 3 ½ percent of the loan, Bell said.

Banks have also had a renewed interest in making SBA loans after two key incentives out of the Recovery Act were announced in March:

• The SBA increased its guarantee to 90 percent from 75 percent on most loans up to $2 million.

• Maximum guarantee on surety bonds for small businesses competing for public construction and service contracts more than doubled to $5 million from $2 million.

Karen Mills, the SBA's new director, said 1,200 banks across the country have recently returned to making SBA loans and others are participating for the first time. Most of those banks are on the coasts, where there have been greater lending woes.

Local bankers and SBA officials said the Midwest and Kansas in particular didn't experience those kinds of extremes, so the swing in banks jumping on board in this area isn't nearly as great.

But Brenda Murray, a business development specialist with the SBA's Wichita office, said, "I am hearing from bankers I haven't talked to in a long time. Between the 90 percent guarantee and the surety increase, banks are motivated to look at things they wouldn't normally do."

None of the new programs has caught the attention of small business owners more than the announcement earlier this week that SBA will start guaranteeing interest-free, payment-deferred catch-up loans of up to $35,000.

Applications for those loans won't be taken until June 15, but lenders and the SBA office have already been getting a rush of calls from potential borrowers.

Unfortunately both lenders and local SBA officials won't receive all the final details of the program until June 8.

"Everyone is trying to figure this out right now," Neff said.

They are known as America's Recovery Capital loans, or ARC loans. As suggested by the name, they are designed to help small businesses recover and not invest in expansion.

Bell said the loans are specifically designed for business having a cash flow problem. In fact, the loans can only be used for existing business debt, such as loan payments, account payables, mortgages and a company credit card.

Repayment doesn't begin until 12 months after the final loan disbursement and borrowers have up to five years to pay it off.

The SBA will pay the lenders the interest on the loans. Bell said the interest will probably be a point or two above the prime rate.

"It'll be something reasonable," Bell said."... Right now, we don't know all the details."

Applications for the ARC loans are made directly to the lenders.

"The SBA has decided the economy is a disaster nationally," said Scott Soderstrom, the small-business lending officer at Intrust Bank. "They figure lenders can critique the applicants faster than they can, which is true."

GMAC Waiting to Issue Debt
Story from the Wall Street Journal

More than three months after turning itself into a bank, GMAC LLC is still waiting for the green light from regulators to issue debt crucial to its funding plan.

GMAC, the former financing arm of General Motors Corp., is seeking the go-ahead from the Federal Deposit Insurance Corp. to sell cheaply priced debt insured by the FDIC as part of the Temporary Liquidity Guarantee Program.

This program has allowed an array of financial institutions, ranging from Citigroup Inc. to General Electric Co.'s General Electric Capital Corp., to raise financing when they were otherwise shut out from repaying or refinancing debt as a result of the credit crisis. Qualifying financial firms have so far raised $238.2 billion of government-backed bonds or surety bonds since this program was announced in October, according to data provider Dealogic.

GMAC has $30.6 billion of debt maturing in 2009, including $11.8 billion of unsecured debt. Gaining access to cheap capital through TLGP was a major driving force behind the cash-strapped lender's bank registration in December.

"Despite becoming a bank, GMAC is squeezed for capital," says Mark Wasden, an analyst at Moody's Investors Service. GMAC unsecured debt is rated the lowest of 19 credit rankings by Moody's, just a step up from default. Moody's outlook on this rating suggests it could be bumped up.

The ability to issue FDIC-backed debt would "represent real liquidity. GMAC needs that today," Mr. Wasden says. The lender could raise as much as $12 billion through the TLGP, according to Moody's initial estimates using FDIC guidelines. "It's a potentially sizable amount," Mr. Wasden says. The amount GMAC may issue could differ based on the FDIC's decision.

"We have an application pending with the FDIC," says Gina Proia, a GMAC spokeswoman. "We are in the process of responding to requests for additional information."

An FDIC spokeswoman said GMAC's application "is currently under review," while declining to comment on specific details.

To be sure, GMAC does have access to other forms of federal funding: It got $5 billion under the U.S. Treasury's Troubled Asset Relief Program. GMAC Bank, as of the end of 2008, had used up $10 million of a $4 billion credit line from the Federal Reserve. The lender also is exploring ways to tap the government's Term Asset-Backed Securities Loan Facility, or TALF, aimed at reviving lending to consumers.

In addition, deposits at GMAC Bank grew by one-third, to $19.2 billion, as of Dec. 31, 2008, compared with a year earlier. The lender also shored up its capital base through a $38 billion debt exchange in November.

But concerns persist around GMAC's finances because of continuing potential losses at its auto-finance and mortgage units; its hefty debt burden; restrictions on its lending practices because of its new status as a bank; and debt and capital levels the lender must comply with as a bank.

GMAC is jointly owned by GM and an investor group led by private-equity firm Cerberus Capital Management LP. The auto maker and the investor group will significantly scale back their ownership in GMAC as a condition of the lender becoming a bank-holding company.

Surety Bond Ceiling More Than Doubled For Small Businesses
As Posted to FoxNews

WASHINGTON, Mar 27, 2009 -- Effective today, small businesses that need surety bonds to compete for construction and service contracts can qualify for U.S. Small Business Administration-backed surety bonds of up to $5 million. The higher amount, a result of the Recovery Act, is more than double the previous $2 million maximum surety bond guaranteed by SBA.

Through SBA's Surety Bond Guarantee program, SBA guarantees bid, payment and performance bonds. Surety bonds protect the project owner against financial loss if contractors default or fail to perform.

SBA partners with the surety industry to help small businesses that would otherwise be unable to obtain bonding in the traditional commercial marketplace. Under the partnership, SBA provides a guarantee to a participating surety company of between 70 and 90 percent of the bond amount.

"During these difficult economic times," said Acting SBA Administrator Darryl K. Hairston, "these changes are particularly helpful to small and emerging contractors who need access to surety bonds so they can bid on public construction and service projects. These changes will support small and emerging businesses nationwide, particularly construction contractors who have seen their markets hurt by a poor economy and lagging construction environment."

Additional program enhancements contained in the stimulus bill will be announced soon in the Federal Register. Among these changes is a provision that will allow SBA to guarantee a bond on a federal contract up to $10 million following certification by the contracting officer that the bond guarantee is required.

In recent years SBA has taken a number of steps to reinvigorate its Surety Bond Guarantee Program and make it easier for small businesses to obtain bonds. In 2007, SBA established a more flexible pricing structure, allowing Preferred Surety Bond Sureties to charge current state rates rather than being locked into rates that were established several years ago.

Industry associations have commended SBA for these new changes and SBA continues to encourage surety bond providers and agents to actively participate in the program.

In the past year, SBA also implemented a new electronic bond application process. Small businesses and surety companies participating in the SBA prior approval program are able to transmit application forms electronically to help expedite review and approval processes. The SBA also re-engineered the claims reimbursement process to shorten the cycle time between submission of a claim for reimbursement by a surety company and payment by the government.

SBA assistance in locating a participating surety company or agent and completing application forms is available online. For more information on SBA's Surety Bond Guarantee Program, go online to http://www.sba.gov/osg/ or call 1-800-U ASK SBA.

Release Number: 09-19

SOURCE: U.S. Small Business Administration

   U.S. Small Business Administration
 Dennis Byrne, 202-205-6567
 Internet Address: http://www.sba.gov/news
 

Orphaned Bonds Leave Investors Spooked

Some bondholders in financial companies that have gone bust or have been taken over are faring well -- but some aren't, and that is driving investors away from the overall corporate-bond market.

The bonds of certain finance firms, such as Bear Stearns Cos. and Wachovia Corp., that have been rescued by large acquirers are faring a lot better than they would have if the issuers had been allowed to go bust.

Meanwhile, the shadow cast by uncertainty over the bonds of troubled financial firms, as well as the overall credit crunch, has shrunk the issuance of corporate bonds overall. "It's increased uncertainty, and markets hate uncertainty," said Guy LeBas, a fixed-income strategist at Janney Montgomery Scott.

J.P. Morgan Chase & Co. inherited all of Bear Stearns's bonds when it bought the distressed firm in the spring. Some of Bear's old bonds lately traded at close to par, or 100 cents on the dollar.

But in Washington Mutual Inc.'s case, J.P. Morgan only bought the banking operations; it didn't acquire any unsecured debt or preferred stock. Those orphaned WaMu bonds traded Wednesday at between 15 and 65 cents on the dollar, according to figures from MarketAxess.

At one point, holders of WaMu's cast-off bonds thought they would get nothing, or nearly nothing, on those investments. But the bonds recovered some ground earlier this week when the non-J.P. Morgan piece of WaMu submitted a federal filing saying it had some $5 billion in cash on hand. That encouraged the market, suggesting the bonds stood a better chance of maintaining interest payments.

On the other hand, Citigroup Inc. has agreed to assume roughly $54 billion in Wachovia debt as Citi assumes control of Wachovia's banking operations. As a result, some Wachovia debt traded Wednesday at as high as 91 cents on the dollar.

Most of Lehman Brothers Holdings Inc. is being taken over by U.K. giant Barclays PLC. But not its bonds. Holders of Lehman Brothers' bonds should receive only a "recovery rate" -- essentially, what can be paid after a bankruptcy settlement, said Joseph Scolato, managing director at Jefferies & Co.

That rate could be low, said Mr. LeBas, given the prices he has seen on sales of Lehman's assets, such as wealth-management arm Neuberger Berman, which sold as part of a $2.15 billion package. Some Lehman issues changed hands Wednesday for close to 12 cents on the dollar.

"I still think it's a mine field out there," said Robert Pavlik, chief investment officer at Oaktree Asset Management, who sold out of Morgan Stanley's bonds two weeks ago. "Your total return is going to be affected if this credit crisis continues. It's just driving people away from corporate debt and preferreds, and into U.S. Treasurys. People can't get into Treasurys fast enough."

Total return on U.S.-issued, investment-grade corporate debt has fallen by about 9% so far this year, according to a Merrill Lynch index. There have been 237 new domestic cheap surety bonds issued so far in 2008 from financial companies, excluding insurers, according to data from Dealogic. That is down from 394 for the same period last year. Almost all in both years were investment grade. Because of its constant need for capital, the financial sector remains the largest in bond issuance.

To attract investors, issuers have had to pay increasingly high yields. A Merrill Lynch index that tracks investment-grade financial issuers shows the premium paid over Treasurys at 6.36 percentage points as of Tuesday, compared with 3.09 points three months earlier.

Nevertheless, the volume of investment-grade corporate bonds fell 68%, to $72.18 billion, in the third quarter from a year earlier, according to data from Thomson Reuters.

By: Annelena Lobb
Wall Street Journal; October 2, 2008