Letters of Credit and Performance Bonds 1
What is required? During the Broadband Infrastructure Grant (BIG) application process, applicants must submit a letter of commitment from a bank, credit union, or other financial institution confirming their intent to issue an official Letter of Credit (LOC) or performance bond to the applicant in the future. This letter of commitment is not the official document required later on. The purpose of this commitment notice is to show the Utah Broadband Center (UBC) that the applicant will be able to obtain the necessary financial backing when awards are given. Before entering into any subgrantee agreement, each prospective subgrantee shall obtain either an irrevocable standby LOC or a performance bond worth at least 10% of the sub-award amount. For example, if a provider receives awards totaling $2 million, the LOC or bond would need to be for $200,000. This must be provided before any BIG funds are disbursed. If using an LOC, applicants must submit an opinion letter from legal counsel confirming that the LOC will not be considered part of the applicant’s estate in case of a bankruptcy proceeding. This requirement does not apply to performance bonds.
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What institutions qualify to issue LOC/bonds? The LOC can come from either a bank or credit union. Banks must be insured by the FDIC and have a Weiss bank safety rating of Bor better. Credit unions must be insured by the National Credit Union Administration and have a Weiss credit union safety rating of B- or better. A company must issue performance bonds with a certificate authority as an acceptable surety on federal bonds.