Maintenance Bond
Categories: Bonds
You run a construction company. You were hired by a rich guy to build a mausoleum for his dearly departed pet iguana (it includes a 40-foot statue of Mr. Iggy). The client is demanding, liable to complain about the smallest imperfections. To make him feel better, you purchase a maintenance bond to cover yourself.
A maintenance bond represents a kind of surety bond. In case there's an issue with a building project (Mr. Iggy's tail falls off, the stone turns black in the rain, etc.), the bond will pay for any fixes that become necessary.
Generally, a contractor will purchase a surety bond on behalf of the owner of the completed project. The contractor will put up some portion of the total...like bailing someone out of jail...and a bit like buying insurance.
In most cases, the contractor pays about 1% to 4% of the total in order to purchase the bond. In Mr. Iggy's case, the grieving pet owner demands a $50,000 maintenance bond. That means you'll have to put up somewhere between $500 to $2,000 to buy the bond.
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Finance: What are Secured Bonds v Unsecu...51 Views
finance a la shmoop what are secured bonds versus unsecured bonds and
debentures okay so that's an insecure bond but we're talking about here is an [Insecure bond hiding under the sheets]
unsecured bond what is an unsecured bond well this is that was an unsecured bond
old school like 15 century old school it was just a handshake one guy promised to [People shake hands]
pay back another 400 pounds of barley in return for three sheep next year or
something like that and the sheep were the payment form not the guarantee and
the bond was loan emic bond ursins word in fact the promise to pay was secured
but by his word or commitment to repay the loans kind of old school debenture
unsecured bonds work similarly today corporations sell debentures to Wall [Corporations sending debentures to Wall St]
Street all the time debenture being a fancy word for an
unsecured bond it's just debt that the company promises [Definition of debenture]
to pay back well if they don't then oh well and yes the debenture holders could
in theory then take ownership of the equity of the company but in reality [Debenture holders take the majority of the company equity pie chart]
unsecured bonds when not paid back almost always mean the death of the CEOs
career and likely also of the careers of all the other members of the management [Gravestones for the management board]
team so while unsecured bonds are notionally more risky than secured bonds
well this issue hasn't been tested all that often in real life okay so if
that's an unsecured bond what's a secured bond well it's one that
is secured by a specific asset or value or other stores of wealth which get [Definition of secured bonds]
forfeited if the lendee doesn't pay back the lender on time and in accord with
the terms of the debt deal example the dung and the restless' is a company that [Sign for 'The Dung and the Restless']
makes fertilizer by collecting old political speeches and grinding them up [Speeches going into the grinding machine]
selling them to farmers in the Midwest you know for a coin but they also own a [Tractor spraying crops]
pork farm which is kind of separate from their main fertilizer biz they need [Hogs Gone Wild logo appears]
money to build a bigger grinder because politicians are giving more speeches
these days you the internet and all that and they [Politician being applauded]
pledged their pork farm as collateral behind that secured bond offering that [Collateral sign on the pork farm]
is if they don't pay back the bond interest and principle on time then they
lose the pork farm to the lenders yeah and that would be a pig mistake... [Guy snorts like a pig]