For several years, banks have increasingly been assigning the handling of guarantees to external service providers.
Bond Management Support, represented by its managing partner, the lawyer Rechtsanwalt Steinwachs, is a company such as this, with experience in guarantee processing in Germany and abroad.
The objective of guarantee management is to reduce guarantee-related risks by applying technical, commercial and legal know-how.
- Absolute independence-> Guarantors are treated with 100% equality
- No Win, No Fee -> Win-Win-Situation
- Worldwide network and expertise
- Flexibility and immediate worldwide availability
- High level of recognition with potential guarantee beneficiaries – immediate access to the key contacts
GUARANTEE MANAGEMENT FOR COMPANIES
A sufficient free guarantee limit has become increasingly important for companies in recent years. Particularly, when a company is in crisis, the guarantee limit is often exploited to the full.
Old and flawed guarantees are often not surrendered, as this often incurs additional costs which the company cannot afford (e.g. Remedy of Defects). Instead, available resources are only used where fast returns are considered most probable.
This has significant negative effects on the development of the company, as the acceptance of new contracts almost always requires the establishment of a new guarantee.
Here, a guarantee manager may take the approach of adjusting the portfolio of existing guarantees by retrieving old, flawed guarantees at relatively low costs. If necessary, all open guarantees will be catalogued and attributed to the individual projects. Existing subcontractor guarantees are recorded and attributed to the main guarantees.
Advantages for the Company:
- Frees up guarantee capacity, without the need for an increase in the credit line
- Performance based fee – no fix costs
- Able to be carried out separately from other streamlining/ reorganization measures
- Reduction of guarantee risk
- No increase in credit line is necessary for the continued operation of the company
- The implementation of a “Guarantee Management Control System” eliminates problems which may arise in the future
RISK EVALUATION – ISSUING NEW GUARANTEES
Risk minimization starts at the issuing phase, and depends on the field for which the guarantee is being issued.
Guarantees often cover more risks than initially required by the beneficiary.
In case of an effective claim under the guarantee, this may lead to an extended risk of payment:
At this stage, we can help drafting the content of a guarantee in technical and economic terms, in order to reduce possible risks in the future.
Underlying Project (“Core Business”):
Thanks to our technical and economical expertise, we are able to review the underlying project figure calculations.
This enables us to evaluate the potential risk of a project against its potential earnings (contribution margins).
We can also conduct spot checks on individual projects and monitor fund application.
ASSESSMENT OF THE GUARANTEE PORTFOLIO
The guarantee manager is able to assess the guarantees of bank customers in order to minimise the bank customer’s risk that guarantees may not be able to be drawn. Should a guarantee default for a bank customer, this customer’s liquidity is in danger, which leads to increased default risks for the bank. This can be avoided!
GUARANTEE MANAGEMENT IN INSOLVENCY
Usually, guarantees become a pressing problem for the bank in the event of insolvency of a corporate customer.
External guarantee management, in cooperation with the business administrators, building engineers, architects and construction lawyers appointed by the guarantee manager, may prevent the unjustified drawdown of a guarantee.
In case of an insolvency of a company, our goals are:
- To protect guarantors from unjustified claims
- To rescind guarantees as quickly as possible and without any claims.
These goals we achieve with our Active Bond Management, i.e.
- Timely and objective evaluation
- Direct personal contact with beneficiaries, preferably prior to an impending claim
- Worldwide readiness for action, due to international network
- Immediate on-site visit of the project – worldwide
- 100% consensus of interest between the guarantor and the Bond Manager!
Experience during recent years has shown that taking a proactive approach – rather than merely waiting for the inevitable drawdown of the guarantee – has provably reduced the risks for the banks.
Cost advantages are of particular importance in this respect. A performance fee may be agreed with the guarantee manager. This means that the guarantee manager will only be paid a fee if he was successful, whereas law firms have to be paid even if the guarantee is drawn at a full 100 %. All costs – such as expenses, expert costs and legal costs – are borne by the guarantee manager.
The guarantee manager will not provide legal advice, but will offer commercial and technical consultancy services. For the legal issues, the guarantee manager will, at his own cost, resort to the services of TRP Advocates Frankfurt am Main.
Another important aspect for the bank is that an objective third party will assess the guarantee drawdown, so that if, for instance, credit securities are exploited, outsiders cannot criticise the exploitation of securities. Practice has also shown that the guarantee manager, even though he was assigned by the bank, is nevertheless perceived as an objective third party, so that better results can be achieved during negotiations.
Please note: The guarantee manager’s aim is not to prevent justified drawdowns of guarantees. Rather, the objective is to reduce, or completely exclude, the guarantee-related risks in the event of unjustified drawdowns.