13 C.F.R. § 115.36   Indemnity settlements and reinstatement of Principal.

Title 13 - Business Credit and Assistance

Title 13: Business Credit and Assistance
Subpart B—Guarantees Subject to Prior Approval

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§ 115.36   Indemnity settlements and reinstatement of Principal.

(a) Indemnity settlements. (1) An indemnity settlement occurs when a defaulted Principal and its Surety agree upon an amount, less than the actual loss under the bond, which will satisfy the Principal's indebtedness to the Surety. Sureties must not agree to any indemnity settlement proposal or enter into any such agreement without SBA's concurrence.

(2) Any settlement proposal submitted for SBA's consideration must include current financial information, including financial statements, tax returns, and credit reports, together with the Surety's written recommendations. It should also indicate whether the Principal is interested in further bonding.

(3) The Surety must pay SBA its pro rata share of the settlement amount within 90 days of receipt. Prior to closing the file on a Principal, the Surety must certify that SBA has received its pro rata share of all indemnity recovery.

(b) Conditions for reinstatement. At any time after a Principal becomes ineligible for further bond guarantees under §115.14(a), the Surety may recommend that such Principal's eligibility be reinstated. OSG may agree to reinstate the Principal and its Affiliates if:

(1) The Principal's guarantee fee has been paid to SBA and SBA receives evidence that the Principal has paid all delinquent amounts due to the Surety (including amounts for Imminent Breach); or

(2) The Surety has settled its claim with the Principal for an amount and on terms accepted by OSG; or

(3) The Principal contests a claim and provides collateral, acceptable to the Surety and OSG, which has a liquidation value of at least the amount of the claim including related expenses; or

(4) The Principal's indebtedness to the Surety is discharged by operation of law (e.g., bankruptcy discharge); or

(5) OSG and the Surety determine that further bond guarantees are appropriate.

(c) Underwriting after reinstatement. A guarantee application submitted after reinstatement of the Principal's eligibility is subject to a very stringent underwriting review.

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