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HomeMy WebLinkAboutFIN 110 Surety Bond Acceptance Policy Policy Procedure Title: Surety Bond Acceptance Policy Policy Number FIN 110 Reference Resolution #574 Date Originated (m/d/y) September 23, 2024 Date Revised (m/d/y) Pages 4 Approval: Chief Administrative Officer Point of Contact Division Head, Finance Policy Objective To establish a policy for the acceptance and administration of Surety Bonds as a form of security under development agreements from surety providers. Index 01 Definitions 02 Scope 03 Requirements for the Surety Bond 04 Acceptable Institutions 05 Administration of Surety Bonds 06 Draw, Reduction or Release of a Surety Bond 01 Definitions 01.01 City – The Corporation of the City of Pickering. 01.02 Development Agreement – refers to any agreement entered into between the City of Pickering and a landowner to regulate the provision of on-site and municipal works required to service land under development applications, and includes, but is not limited to, Site Plan, Plan of Subdivision/Condominium, Master Development Agreement, Construction Agreement and Servicing Agreement. 01.03 Irrevocable – a Surety Bond cannot be revoked or amended without agreement of both the City and the issuing insurance company. 01.04 Rider – a Surety Bond provision that amends the terms of the Surety Bond (i.e., a reduction in the bond value). Policy Title: Surety Bond Acceptance Policy Page 2 of 4 Policy Number: FIN 110 01.05 Security – an amount required to be provided under a Development Agreement, which will ultimately be returned to the developer after the terms of the Development Agreement have been executed to the City’s satisfaction, but may be drawn upon in the event of a contravention to the Agreement obligations. 01.06 Surety Bond – a bond which guarantees the assumption of responsibility for payment of security in the event of default of a Development Agreement. 01.07 Surety Provider – a company licensed, either federally or by a provincial insurance regulatory body, to issue Surety Bonds in the Province of Ontario. 02 Scope 02.01 The City allows Surety Bonds to be submitted as security for Performance and Maintenance obligations under Development Agreements. The issuing insurance companies of Surety Bonds accepted by the City must meet specific credit-rating requirements and the Surety Bond must be written in a specific form. 02.02 The use of Surety Bonds as security for Development Agreements shall be limited to an upset amount of $15 million per agreement. If the required amount of security is above the upset limit, then the balance remaining must be secured by a Letter of Credit. 02.03 Surety Bonds may be accepted for other types of agreements at the discretion of the Director, Finance & Treasurer. 03 Requirements for the Surety Bond 03.01 The Surety Bond to be provided to the City, issued by a Surety Provider, shall be irrevocable and shall be in the form and on the terms of the Surety Bond “template” attached hereto as Appendix 1. 03.02 The City will only accept original copies of Surety Bonds (electronic copies will not be accepted). 03.03 Notwithstanding anything in this Policy: a) The City may, at its discretion, decline a Surety Bond for any reason; and, b) When a Surety Bond has been received and is being held by the City, and the City is no longer satisfied that the Surety Bond provides adequate protection, the City may require a new security to its satisfaction, to be provided to the City within ten calendar days of demand for same and the original Surety Bond will be returned and/or exchanged for the replacement security. In the event the new scurity is not received as required, the City may draw upon the original Surety Bond. Policy Title: Surety Bond Acceptance Policy Page 3 of 4 Policy Number: FIN 110 04 Acceptable Institutions 04.01 The City will accept Surety Bonds from a Canadian Surety Provider having a minimum credit rating of: a) “A+” or higher as assessed by AM Best’s Financial Strength Rating (FSR); or, b) “A” or higher as assessed by DBRS Morningstar FSR; or, c) “A2” or higher as assessed by Moody’s Investor Services FSR; or, d) “A” or higher as assessed by S&P’s Financial Strength Rating. AM Best’s FSR is the preferred credit rating to be used for assessing a Surety Provider’s solvency, financial strength and ability to pay their policyholders’ claims. 04.02 The issuing company shall be incorporated in Canada for no less than ten years and issue Surety Bonds in Canadian dollars. 04.04 The issuing Surety Provider must be an active institution monitored by the Office of the Superintendent of Financial Institutions. 04.05 When a Surety Provider, that has issued or confirmed a Surety Bond received and held by the City, subsequently ceases, (in the opinion of the City), to meet all or any of the requirements of this Policy, the City may, at its discretion and subject to section 04.01 of this Policy, require a new security to its satisfaction to be provided to the City within ten days of demand for same and the original Surety Bond will be returned or exchanged for the replacement security. In the event the new security is not received as required, the City may draw upon the original Surety Bond. 04.06 Where there is doubt as to the credit rating or other qualification of a Surety Provider, the Director, Finance & Treasurer or the Division Head, Finance shall be satisfied that the institution meets the requirements of this Policy. 05 Administration of Surety Bonds 05.01 Originating Department is responsible for the following: a) providing the City’s Surety Bond “template” (see Appendix 1) to developers, landowners, etc. for them to comply with; b) ensuring that the form, content and wording of Surety Bonds received from developers, landowners, etc. match the City’s Surety Bond “template”; and, c) forwarding the Surety Bonds to the Finance Department for evaluation and safekeeping. Policy Title: Surety Bond Acceptance Policy Page 4 of 4 Policy Number: FIN 110 05.02 The Finance Department is responsible for the following: a) confirming the acceptance of Surety Bonds by email to the originating department; b) that all Surety Bonds submitted meet the requirements of this Policy; c) the safekeeping of the Surety Bonds; and, d) all draws, reductions, or releases of Surety Bonds. 06 Draw, Reduction or Release of a Surety Bond 06.01 A request in writing to draw, reduce or release the Surety Bond, duly signed by an authorized employee (from the originating Department) shall be forwarded to the Finance Department for the Division Head, Finance’s authorization. 06.02 A letter of request to draw, reduce, or release a Surety Bond is prepared and signed by the Division Head, Finance or designate and distributed as follows: • financial institution (original) • requester in originating department • individual/developer who submitted Letter of Credit 06.03 For Surety Bond reductions, Surety Bond providers are required to provide “original” copies of Riders to the Finance Department to acknowledge the reduction in the value of the Surety Bond. Finance staff will confirm acceptance of Riders by email to the originating Department. If a Surety Provider fails to provide a Rider to the Finance Department, the originating Department is responsible for following up with the developer, landowner, etc. to ensure that the City receives the “original” rider. Appendices Appendix 1 Surety Bond Template